HC Deb 10 February 1988 vol 127 cc368-70 4.16 pm
Mr. Elliot Morley (Glanford and Scunthorpe)

I beg to move, That leave be given to bring in a Bill to control the rate of interest charged by credit card companies by linking it to the rate recommended for borrowing by the Bank of England: to prohibit the making of inducements designed to promote excess borrowing by credit card users: to prohibit the charging of arrangement fees for consolidation and other forms of loans: to provide for clear written examples of what the APR means in financial terms and warnings for any loan scheme that may involve the loss of a house as part of the loan security conditions: and to make other provisions as to regulating such borrowing. The Bill seeks to tackle the growing debt crisis in our society and recognises that much of the recent consumer boom has been financed on credit. Credit can be a useful and valuable option, but many families are paying a price for that credit in the misery of a spiral of debt that hangs round their necks like a chain.

It is time that some of the issues raised by such a credit expansion were brought out into the open. I have been motivated to introduce the Bill by my case work experience and the growing number of people who are turning to organisations such as the citizens advice bureaux and the money advice centres, locally and nationally, for help.

There is no limit to interest rates in Britain. I was shocked recently to be involved in a case in my constituency of a woman in her eighties. She was concerned about her electric and domestic bills and was unwell and vulnerable. She entered into a credit agreement with a finance company that charged her 1,000 per cent. APR interest.

On top of that, the lady was also charged for an insurance policy for redundancy even though it must have been clear to the agent who sold the policy that it was completely useless. I was able to obtain a refund for that lady, but, in the process, she died. There is no doubt that the stress of those loans added much to her ill health.

Loans at rates such as that are perfectly legal in Britain, but can they be justified? It is time that we had a maximum legal limit on consumer credit interest in Britain.

Initially, the Bill sought to tackle the many complaints that have been brought to me about the rate of interest being charged by bank and shop credit cards and the fact that when bank interest rates have fallen, the interest rates for credit have hardly moved. Those are two of the main facts that have led me to introduce the Bill.

Let me summarise the Bill's main proposals. First, it seeks to introduce a formula that will link all credit card interest rates, shop and bank, to the average bank personal loan lending rates, in a way that will allow credit card companies some flexibility, but will put a ceiling on the excessive interest rates being charged by some credit cards, particularly store cards.

Secondly, the Bill proposes to prohibit the marketing of credit cards by schemes that reward users with gifts according to the amount they spend on those cards; thirdly, it would ensure that all credit agreements print examples of repayments on money borrowed in cash terms as well as the APR; fourthly, it would make illegal the charging of arrangement fees for loans; fifthly, it would ensure that all credit agreements that require the use of a person's home as security have a clear written warning that such schemes can lead to a loss of that person's house.

I should also like to suggest that all consumer credit organisations pay a levy from their profits to finance a chain of money advice centres, possibly incorporating existing ones, and the advisory role of the CAB that will enable anyone in Britain to get impartial debt advice.

Consumer debt in Britain has risen from £17.3 billion in 1980 to £41 billion in 1986–87, a figure that accounts for 10.7 per cent. of our total GDP. More than 2 million default summonses were issued in 1985, in the first quarter of the past financial year lending increased by 32 per cent., and there was a staggering 77 per cent. increase in credit card borrowing. That is the scale of the problem—all the more so when the interest rates of the two main credit cards have been on average at least 14 percentage points above the bank lending rate. The Government have considered that there is enough concern to refer credit cards to the Monopolies and Mergers Commission.

I seek to prohibit the marketing of credit cards by schemes which give gifts through accumulating points by spending on credit cards. The more one spends, the more points one gets. Although the introducers of the scheme associated with Barclaycard are aware of the dangers, at the very least such a scheme means that in effect those with debts are subsidising the richer users who get the gifts that are paid for by all the users. If credit card companies want to increase their market share, they should do so by marketing on reduced interest rates rather than by such schemes.

Since I announced the Bill, I have been contacted by a large number of organisations and individuals, and my attention has been drawn to the fact that many credit organisations at the shadier end of the market are capitalising on the misfortune of those who get into debt. Those consolidation loans often require a person's house as security, and may mean that people end up owing more money than they owed when they started. In some cases people are charged up to £2,000 in arrangement fees. When a credit firm is making a profit on interest repayments, there is no justification for such fees, and I propose that they are banned as soon as possible.

I also want all credit schemes that involve using the home as security to print a written warning in a prominent fashion so that people entering into such schemes are left in no doubt that such a schemes could lead to the loss of their homes.

According to a Marplan poll commissioned by the National Consumer Council, less than half the people questioned knew how APR was calculated. To make sure that people understand exactly what is being charged, I am therefore proposing that all credit agreements should give examples in cash terms of the monthly repayments and the total cost of the loan as well as the APR.

There are a great many issues of concern about consumer credit in Britain. Other proposals are needed in addition to those in the Bill, to deal with such issues as the way in which advertising by some credit companies is aimed particularly at those who are already in debt, and low-paid store assistants are given financial bonuses to get more customers on to their store credit card.

It is fair to say that many credit companies are responsible and reputable and are aware of all the points that I am laying out in the Bill, but can the range of credit card interest in Britain — from 19.5 per cent. of John Lewis to the nearly 40 per cent. of Dixons—be Justified?

Has the number of people suffering from debt been underplayed by a Government who wish to portray consumer booms as an economic miracle of their making? When one considers that on current estimates over half those on social security have some form of debt, does that not raise questions about the introduction of loans to replace single payments under the new social fund that is due to be introduced in April, and the effect that that will have on people who already have debt problems, partly due to the issues that I have outlined?

Although the Bill is designed to obtain a fairer deal for people on all incomes, from the highest to the lowest, as always it is the poorest and weakest in our society who carry the greatest burden. The poor and the low-paid carry the greatest debts as a proportion of their incomes. As the gap between rich and poor continues to grow, the Bill gives the Government the opportunity to tackle some of the injustices and abuses of consumer credit, to ensure fairer interest rates, and to lift the burden in particular from those whose lives are being destroyed by the misery of debt and the unscrupulous who prey upon them.

Question put and agreed to.

Bill ordered to be brought in by Mr. Elliot Morley, Mr. Alan Meale, Mr. Gerry Steinberg, Ms. Marjorie Mowlam, Mr. Rhodri Morgan, Mr. Paul Flynn, Mr. Paul Murphy, Mr. Eric Illsley, Mr. Dennis Skinner, Mr. Paul Boateng, Mr. John McFall and Mr. Alun Michael.

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  1. CREDIT (CONTROL) 132 words