§ Adam Price (East Carmarthen and Dinefwr)I beg to move,
That leave be given to bring in a Bill to impose limits on the interest rate and associated charges which I may be charged by those providing loans and other forms of credit.My Bill seeks to tackle what has been described as the silent sickness of spiralling indebtedness which is afflicting more and more people in our society, particularly the poorest and the most vulnerable. There can be no doubt that mounting personal debt is causing severe problems for an increasing number of families. The Bank of England published figures for March that showed that once repayments were taken into account, outstanding debt on credit cards, loans and overdrafts rose by £1.68 billion in a single month. So it should come as no surprise that, increasingly, many people are getting into severe difficulties, sometimes with tragic consequences.
According to Citizens Advice, inquiries from people seeking debt counselling have risen by 44 per cent. over the past six years. Some 6.4 million people suffer from emotional and physical trauma caused by debt, according to latest data from Debt Free Direct. Almost 500,000 people have developed a drinking problem and some 250,000 have turned to gambling as a perceived solution to their ongoing financial difficulties. More than 1 million people with debt problems have seen relationships with their partners end in separation or divorce. Even the Financial Services Authority has admitted that almost 7 million people are already struggling to meet monthly repayments.
There are many different dimensions to the growing problem of debt. One is the easy availability of credit; unsolicited credit card offers and even cheque books are pushed through people's letterboxes daily. We remember the infamous case of Monty the shih tzu, from Stockport, who was recently offered a gold card with a credit limit of £10,000 by the Royal Bank of Scotland. There is also the lack of transparency in credit contracts and the difficulty in comparing annual percentage rates. The Treasury Committee covered the issue extensively in its recent report.
If we are to understand the problem of escalating debt that faces many people, we must consider a much more fundamental issue, which my Bill seeks to address: the cost of credit. Consumers, especially those on low incomes, pay a substantially higher price for credit than is warranted by the costs involved or the associated lending risks. In layman's terms, credit card companies and others are ripping people off, and destroying lives in the process.
The House does not have to take my word for that. We have it on the good authority of Mr. Matthew Barrett, the group chief executive of Barclays bank, who said in evidence to the Treasury Committee that he would not borrow on credit cards because it was too expensive. When it comes to gilt-edged admissions of corporate irresponsibility, that is up there with Gerald Ratner. The ironic aspect of Mr. Barrett's comments is that he probably can afford the repayments. It is the poorer households that are hit the hardest, because they owe the most relative to their income and pay the most for the privilege.
358 According to Debt on Your Doorstep, more than 3 million people on very low incomes have to borrow money at interest rates of between 150 and 200 per cent. per annum. A recent study by the Office of Fair Trading found that some store cards carried a charge of as much as 32 per cent., and similar rates are charged on unauthorised overdrafts. It was recently revealed inThe Guardian that there have been trials in Scotland of a new Visa card, the Vanquis, which charges an APR of 64.9 per cent.—more than 16 times the Bank of England base rate. To be fair, the Department of Trade and Industry has published a White Paper, which contained some good ideas for cracking down on loan sharks and better protection against unfair credit deals, and the OFT has made a study of store cards.
The one thing that the Government have so far shied away from—the reason for my Bill—is the introduction of a maximum interest rate that lenders can charge. Since the introduction of the Consumer Credit Act 1974, the UK has had no statutory ceiling for interest rates. There was a 48 per cent. per annum limit but, unfortunately, the Act abolished it. Currently, the only protection under the Act for consumers who have got into difficulty is that lenders cannot charge "extortionate" interest rates. That is of little assistance to people who cannot afford to go to court and when there is no legal definition of "extortionate". A case in 1995 suggested that rates of 44 per cent. were bordering on extortionate but, in 30 years, consumers have won only 10 cases under the Act.
There are statutory caps in most northern European countries and in north America. In Austria, the cap is set at 20 per cent. per annum; it is 7 per cent. in Belgium and Finland, 9 per cent. in Greece and 15 per cent. in Switzerland. There are also caps in France, Italy, the Netherlands, Germany and many US states.
One argument advanced against a cap is that it might restrict the amount of credit for low-income households, driving them into the arms of unlicensed lenders. However, although the UK has by far the highest exclusion rate in northern Europe for financial services for people on low incomes, we have the weakest standards of consumer protection. Low-income households have better access to credit in countries where there is a cap.
Clearly, for a cap to be successful, it must allow a realistic rate for the lender but one that is low enough to benefit the consumer. It has been suggested that the cap could be expressed as the Bank of England base rate plus x per cent. where x is set at a level that covers the risk posed to firms. Provided that issuers make an adequate rate of return under the cap, they will continue to offer credit, because the cap would be set at a rate higher than the cost of offering the credit. In that scenario, customers will benefit. They will continue to obtain credit, and they will get it at a lower and fairer price.
It has been suggested that there could be attempts to evade the cap by raising fees and other charges. However, my Bill would not merely cap interest rates; it would also cover fees and charges in a single calculation of the cost of credit. Furthermore, it would introduce a cap on interest on arrears, which affects so many people who have got into difficulty, and on collection charges in the event of default.
359 Above all, my Bill would ease the burden of debt for those least able to bear it, and for that reason I commend it to the House.
Question put and agreed to.
Bill ordered to be brought in by Adam Price, Tony Lloyd, Harry Cohen, Mr. Huw Edwards, Mr. Frank Field, Sue Doughty, Alan Simpson, David Taylor, Mr. Roger Williams, Annabelle Ewing, Mr. Elfyn Llwyd and Sir Teddy Taylor.