Consumer Credit: Promotion (Hansard, 24 July 1989)

§ The Secretary of State for Trade and Industry (Lord Young of Graffham)
My Lords, the Government will continue to urge financial institutions to show responsibility in promoting credit. They will also continue to urge customers to show responsibility in deciding whether to accept or refuse credit offers.

§ Lord Rippon of Hexham
My Lords, I appreciate the Secretary of State's Answer, but is he aware that both the Governor of the Bank of England and the Prime Minister have expressed concern about the present position? Does he agree that it is not competition but exploitation? Does he remember that when we were discussing the brewers he said that competition is good but that there are times when the customer ought to be protected? Is this not one of those times?

§ Lord Young of Graffham
My Lords, we have considerable protection against aggressive advertising. First, the law provides that advertisements must not be deceptive or misleading; secondly, consumers must be given sufficient 1126 information before they enter into binding commitments for credit; thirdly, we support the Citizens' Advice Bureaux so that consumers have access to good advice about credit; and finally, the Governor of the Bank of England has publicly encouraged banks to be more responsible in their advertising of consumer credit. At the end of the day consumer credit is only 16 per cent. of total household borrowings; the other 84 per cent. is for house purchase.

Lord Bruce of Donington
My Lords, is the noble Lord aware that, according to the Bank of England returns published on 12th July, lendings by banks to United Kingdom individuals other than those connected with house purchase increased by £2.1 billion, which in itself is a record and exceeds the record of the same three month period last year of £1£8 billion to August 1988? Is he aware that this runs completely counter to the restraints urged upon borrowers by the Government themselves? What is happening is that borrowers are circumventing mortgage interest rates by increasing their borrowings for personal items, including holidays. Will he suggest to the Prime Minister's office that perhaps a spokesman should convey her fury about such a development?

§ Lord Young of Graffham
My Lords, I fear that the noble Lord has misread the statistics on this occasion. Lending by the main high street banks moved last month in the opposite direction. It was £331 million in May compared with £360 million in April. It has gone down. The volume of retail sales also fell in June. There is little evidence of any recent worsening of the position. In the case of mortgages, there were fewer repossessions by building societies in the second half of last year than in the first. Fewer building society borrowers had arrears of more than six months. This is very much a matter for the indiviual citizen to decide.

§ Lord Nugent of Guildford
My Lords, will my noble friend consider the following suggestion? When these seductive advertisements for borrowing appear in the national press, they should state that, where a second charge is required on the property and there is a default, the individual's property is at risk. There should be a warning as is the case with cigarette advertising.

§ Lord Young of Graffham
My Lords, I shall certainly look into the suggestion made by my noble friend. However, I think it would be slightly unusual if anyone who took a charge or a mortgage on his home, even if it were a second mortgage, did not know at the end of the day that it would threaten the ownership of his property.

§ Lord Rippon of Hexham
My Lords, can the Secretary of State give an assurance that if the Government's efforts to discourage the banks and others from acting irresponsibly fail, they will take further action, perhaps by introducing legislation, to control usuary because that of course is what it is?

§ Lord Young of Graffham
My Lords, other countries, including the United States, Japan, Germany and France, have abandoned any controls they had on the amount of consumer lending recognising them to be ineffective, unfair and, indeed, at the end of the day, damaging. Moreover, exactly like us, such countries rely primarily upon interest rates.

§ Lord Stoddart of Swindon
My Lords, is it not a fact that the continued expansion of domestic credit, which went up by £3 million in June, is a threat to the Government's total economic policy and also a threat to their inflationary policy? Will the noble Lord agree to reconsider the suggestion I made to him the other day that banks and other lending institutions should be compelled to make special deposits with the Bank of England at a very low rate of interest?

§ Lord Young of Graffham
My Lords, I am grateful that the noble Lord, Lord Stoddart of Swindon, is concerned to ensure that the Government's economic policy succeeds. I share the noble Lord's sentiments in the matter. However, I should point out to him that the amount outstanding on consumer credit is bound to rise as disposable incomes rise and the ability to repay loans increases. That has been the great change in this decade. Personal sector financial assets are three times greater than financial liabilities. Indeed, they are actually growing faster.

§ Lord Peston
My Lords, perhaps I should preface my short, pungent question by saying how sad I am to hear the rumour that the Secretary of State may not be answering any more questions from the Dispatch Box. I turn now to my question. Is it not intriguing and astonishing that, despite extraordinarily high interests rates—and they are very high for consumers but consumers are not being misled about them; indeed, the rates are perfectly clear—consumers still continue to borrow? Do the Government have any explanation as to why they continue to do so?

§ Lord Young of Graffham
My Lords, perhaps I may suggest to the noble Lord that he should consider most carefully all articles that he reads in the newspapers. But, having said that, so far as concerns the amount of credit, we live in a world in which the level of personal income is rising sharply. We live in a world where, happily, the citizen is at liberty to decide how he or she wishes to dispose of that income.
We have seen borrowings increase; but I should say that the figure regarding lending for consumption by the main high street banks actually decreased in the month of May as compared with April.