Westminster Hall Sitting of 22 April 2004

Preamble
[SIR NICHOLAS WINTERTON in the Chair]

Credit Card Charges
[Relevant documents: First Report from the Treasury Committee, Session 2003–04, HC 125, and the Responses thereto, HC 431.]
Motion made, and Question proposed, That the sitting be now adjourned.—[Paul Clark.]
2.30 pm
Mr. John McFall: It is a pleasure to be introducing the Treasury Committee report on transparency of credit card charges. The report has had quite a big effect on people in the industry by pointing out what the agenda should be. I should like to remind the Chamber of the origins of our investigations. In our report on banking and small businesses, published in July 2002, we concluded that there was a "lack of transparency" in the credit and charge card industry, which acts
"against meaningful competition and is therefore against consumers' interest"
and that
"for individuals to understand interest rate calculations requires an unreasonable time and effort".
We returned to the issue of credit cards in July 2003 to examine transparency and inconsistent practices in that market in the context of concerns about the build-up of personal debt. We took evidence from consumer groups, credit and store card issuers and the Association for Payment Clearing Services. In October we held a hearing with the five chief executives of the largest credit card issuers, which represent nearly 70 per cent. of the market.
Our findings indicated that there are many problems with transparency in the credit card market and, with the exception of one issuer, Nationwide, no progress had been made since our report in 2002. We looked at a number of problems in the industry. First, important information is buried in the small print and written in technical jargon, which makes it extremely difficult to compare cards. Providers are allowed to calculate the annual percentage rate, the figure most commonly used by consumers to compare cards, in more than one way. The true cost to the consumer of different cards is concealed behind complex interest rate calculation methods, not taking account of the APR, and seemingly unreasonable charges are levied which are sometimes not specified in advance. There are serious problems in the store card market due to lack of transparency.
Some of those problems represent a regulatory framework that is comprehensively out of date; indeed, we have been waiting over 30 years for the review of the Consumer Credit Act 1974. I see, to my left, the Messiah coming, in the form of the Minister. I hope that his tablets are clear because he has a lot to answer for. The regulatory framework is so far out of date that there has been no impetus for the industry to improve matters. As Gary Hoffman, the chief executive of Barclaycard, acknowledged, the Committee's inquiry has been a wake-up call for the industry.
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We have now seen some improvements in the industry with the implementation of the summary box, giving consumers clearer information on key terms and conditions. The summary box has been introduced in credit and store card literature; that has to be welcomed. We have the promise of a single method of APR calculation to be introduced by October 2004, and it will be for the Minister to clarify that point when he sums up. There have also been warnings for consumers about the consequences of making only the minimum repayment.
The Office of Fair Trading has taken action against Barclaycard over misleading advertising material and it has investigated the store card sector. It concluded that there are serious questions about competition and referred the industry to the Competition Commission. The inquiry started with the Select Committee and has ended up with the Competition Commission. I congratulate my colleagues on the Committee and the staff for their work towards that end, because it is a very significant victory.
I mentioned that more remains to be done; for example, the use of larger type, the inclusion of scenarios in the summary box, and the provision of clearer comparable information and monthly statements. We also need further transparency, more responsible marketing practices and, possibly, standardisation of complex interest rate calculation methods. There are opportunities for further progress over the next few months, and I hope that that can be achieved. The banking code is being reviewed, and with the review of the Consumer Credit Act being undertaken by the Minister and the Department of Trade and Industry, we may have an opportunity to introduce new regulations on advertising, the form and content of credit agreements, and the standardisation of APR calculations.
We shall continue to work with the industry, the DTI and the OFT to spur on the necessary improvements. The message from today's debate is that this is a continuing inquiry by the Treasury Committee, and our business will not be finished until the industry gets itself into shape. If that means industry representatives regularly meeting the Committee in the most convivial circumstances, we will be delighted to invite them, so that we achieve a result. We hope in July or perhaps in September to invite industry leaders—the chief executives of the banks and others—back to the Committee to see exactly what progress has been made.
With regard to the summary box, the Consumers Association told us that there is huge choice, but it is not always easy for consumers to exercise choice if they cannot compare and contrast cards and work out which are best for them. Last July, when industry representatives appeared before us, we challenged them to agree proposals for the summary box over the next few months, before a hearing with the chief executives of the five largest credit card issuers. I have to say that the industry did move on that, and we congratulate it on doing so, but the devil is in the detail, and that is what we shall examine over the coming months.
It is often difficult for trade associations to negotiate agreements on such matters without some such external influence. The Committee's investigation was instrumental in securing agreement on the summary box in an appropriate time frame and ensuring that

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consumers have not had to wait too long for that vital information. MBNA, one of the largest credit card providers, told us:
"The Treasury Select Committee focus on transparency has solidified industry agreement on the Box—and we believe that this is potentially of great benefit to consumers."
The issues that still garner our attention are the format, the placing and the print size. I think that we wanted an 18-point font size. I had a meeting the other day with Mr. Chris Pearson, Ms Sandra Quinn and colleagues from APACS and I was heartened to hear of the progress being made. However, on print size, there are still a number of problems to overcome, so after the meeting I decided to write to the major credit card providers to ask what their practices are and what has changed for them in the past few months, and to tell us, before they appear before the Committee again in September, what they are working on. That will enable us to have a positive encounter.
Mr. James Plaskitt: My hon. Friend is rightly outlining the difficulties that the industry is having in reaching agreement on the summary box. When that finally happens, we may hear ringing declarations that it represents a great victory for consumers, but does he agree that reaching an agreement and implementing it will not solve the industry's problems and will be only the beginning of the solution?
Mr. McFall: I agree that reaching agreement will be a victory in itself, but there are a number of areas that we have to address. Summary boxes are not the beginning and end of the process, and I shall mention other aspects.
Many groups have called for the inclusion in summary boxes of illustrative borrowing scenarios showing the cost of cards in pounds and pence. I detect in some parts of the industry a reluctance to go down that path, and I am looking for improvements. The Committee also wants summary boxes to appear on monthly statements, so that consumers are continually aware of the key financial information about the card that they are using. That will enable them to compare products and determine where they can get the best deal. HBOS has already taken steps to include the summary box in monthly statements, and other banks, including the Royal Bank of Scotland, already provide most of the information on statements. I hope that lenders tackle that issue during the current review of banking procedure.
There is also the question of annual percentage rates. The Banking Code Standards Board told us that its research revealed that consumers tend to have a sketchy understanding of what APR means but use it as an all-purpose basis of comparison between products. I have a special message for Mr. John Tiner of the Financial Services Authority, because the authority's website states:
"You do not need to know how to work out an APR. The important thing is that APRs show the cost of borrowing on a standard basis. So you can compare one APR with another."
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Wrong, wrong and wrong again. I would like to think that by the end of the week, Mr. Tiner will have got his skates on and that message will have been taken off the website. In our leisure time this weekend my colleagues and I may visit the site to see what has happened.
As we learned during the inquiry, legal ambiguities in the regulations mean that the APR, the figure most commonly used by consumers to compare products, may be calculated in more than one way. That information was largely hidden until it was exposed by the Treasury Committee. Banks and credit card companies were delighted to go along with that practice, because it caused them little hassle and perhaps gave them extra profits. However, it does the consumer down, and it must change.
The Minister has a big responsibility on this matter. I hear that the industry is lobbying the DTI and trying to soften him up to ensure that the changes have been implemented not by October 2004 but by October 2005. I will hang on my hon. Friend's words when he winds up this debate to find out whether we will get the APR change. During our inquiry my colleagues and I were insistent that that change should be made as soon as possible, and the Minister was supportive when he gave evidence. He should not listen to the industry on this point, and he should forget about the technical complexities because the industry has had decades to make the change. We want it made by October 2004, and we will revisit the issue.
The Minister for Employment Relations, Competition and Consumers (Mr. Gerry Sutcliffe): I will comment on the APR in my winding-up speech, but my hon. Friend knows that it is not the only aspect of the products and hidden charges which confuses consumers.
Mr. McFall: I agree entirely. We have a full agenda to be working on, and other issues, such as interest rate calculation, are important. However, if the APR is being used as a tool for comparison, it must be legitimate. At the moment, it is an illegitimate tool, which is unsatisfactory. As I mentioned, the target date was October 2004, and I am looking for confirmation of that.
In addition to the interest rate, we found that a key determinant of the overall cost of credit is the method that credit card firms use to calculate the interest. That covers such factors as when lenders begin to charge interest on purchases made and when they stop charging interest after a payment is received from the customer. However, the Consumers Association identified 10 different methods of interest rate calculation currently in use in the UK credit market. It estimated that a series of transactions could cost up to 76 per cent. more on one card than another, depending on the method used.
The industry told us that interest rate calculation is a competition issue, but in evidence to us, John Vickers, chairman of the Office of Fair Trading, told us:
"If a product characteristic is invisible to consumers then it cannot be a dimension of competition".
The entire Treasury Committee agrees with that. In the anecdotal evidence that I have built up over past months, chief executives tell me, in their confessional approach to me, that the competition issue is a smokescreen and that people are making, to use the

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slang phrase, a quick buck out of it at the expense of the customer. That practice must stop, and the DTI must get on the chase.
Another issue about which we were quite exercised was transactions and penalty charges. As we know, credit card companies often levy charges if a borrower pays late or exceeds their credit limit. However, concern was expressed at the Committee's hearings that often the level of such charges is not made clear to the cardholder; in many cases that information is buried in the small print. We saw one card agreement that said:
"You agree to pay us a charge if we do not receive your minimum payment by the due date."
There was no reference to how much the charge would be. However, there have been some improvements. Such behaviour will not occur in future as lenders will have to list all charges in the summary box.
When we asked the industry about the issues, representatives of Lloyds TSB told us:
"Our charges reflect the costs we incur when customers fail to make payment or fall into arrears".
MBNA told us that its charges
"represented a genuine pre-estimate of part of the costs incurred and loss suffered by MBNA".
No company provided any information or figures to back up those assertions. Indeed, Barclaycard refused to provide any further information on the revenue raised from penalty fees, even in confidence. Barclaycard representatives told us that since they
"do not release this information in detail to our share holders via our accounts",
they were unable to supply such information to the Committee. We have therefore seen no evidence from lenders that transaction and penalty fees represent a fair reflection of the costs involved.
Lenders must justify their charges, and the report called on lenders to place in the public domain figures on the amounts raised from penalty charges. We are very pleased that the OFT is currently investigating the level of fees charged, but if that information is not in the public domain, the companies are open to the charge of ripping off customers. On the arbitrary imposition of a £25 levy, why should it be £25? In the view of some credit cardholders who are more in debt than others, a £25 levy could be very detrimental, compared with its effect on others who can afford it. It borders on the issue of over-indebtedness and poverty. I am making a plea for those companies—Barclays and others—to make public the amount of money made from charges. We do not want that to conflict with their commercial confidentiality, but it is a basic issue that needs attention.
We also identified some marketing practices that gave us considerable cause for concern. There is the well known story about "Monty", the dog in Manchester that had a £10,000 credit limit. Mr. Fred Goodwin duly apologised for that, although he did not tell us whether the dog had chewed up the card. A number of very disturbing examples were given to us by, among others, citizens advice bureaux. One concerned a client on income support who had run up a credit card debt to pay for his drug addiction. He had been resident in a rehabilitation clinic for six months when he received an unsolicited credit card application form there. He completed it and the credit card company issued him a
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card. He told the citizens advice bureau that it was fortunate that a member of the clinic staff had intercepted the card, otherwise he would have been tempted to use it to buy more drugs.
Such marketing practices should be not only condemned, but outlawed. The companies have made insufficient progress in that area. Mr. Hoffman, the chief executive of Barclaycard, said following our inquiry that issuers were looking at their marketing practices more closely than ever. Again, however, much work needs to be done.
We also examined marketing material from Barclaycard for its so-called "0 per cent. for ever" offer. The offer proved to be so complex that even the redoubtable Mr. Matthew Barrett, the chief executive officer of Barclays Bank, appeared unable fully to understand its consequences. Given his inability to do so, we recruited Dr. Robert Hunt of the institute of mathematical sciences at Cambridge university to help us understand how much the offer could cost. The OFT also looked at it and considered the marketing material to be "highly misleading" and in breach of the Consumer Credit Act. Barclaycard subsequently withdrew the material.
John Vickers, the OFT chairman, said:
"Barclaycard promoted this product as offering the opportunity to borrow at 0 per cent. interest forever. It does no such thing. The promotion in these terms has therefore been stopped."
Why do we need to wait until a company of the size and reputation of Barclays introduces such an offer, only to find, shamefacedly, that it must withdraw it? If people do their research properly, such cases should not arise. Again, that points to the work that the Committee has undertaken and to how fertile are the areas that we have investigated.
A lot more information is needed on over-indebtedness. I agree that it affects only a small proportion of the population. The majority of people handle credit responsibly and avoid becoming overcommitted. However, there appears to be a small but significant minority for whom servicing debts has become a problem. It is important to recognise that over-indebtedness can have a devastating effect on people's lives. The Government and the credit card industry need to work harder to prevent over-indebtedness.
Mr. Sutcliffe: My hon. Friend is coming to a crucial point. The focus of the report was on the credit card industry, but over-indebtedness can hit anybody at any time, for a variety of reasons. My hon. Friend will no doubt welcome the Government's establishment of the over-indebtedness advisory group and a cross-ministerial team to look at the issues. They include not only those arising from the credit card industry, but how the Government and local government deal with the collection of council tax and other taxes, and how such matters can affect over-indebtedness, which is a massive issue.
Mr. McFall: I agree that over-indebtedness is a massive issue. I mentioned earlier that credit cards are a positive source of finance for many people. The Committee has considered over-indebtedness and taken it up with Mervyn King, the governor of the Bank of

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England, among others. We asked the Bank of England to look into the issue and give us more information on it. We also took evidence from those working on the ground. Citizens Advice, for instance, told us that
"credit cards are the single largest debt by number".
If I remember rightly—my hon. Friends can correct me if I am wrong—the number of inquiries about consumer debate received by the bureaux has increased by 46 per cent. in the last three years. Over-indebtedness is therefore a growing issue to which we must pay attention.
I remind the Minister, in a light way, that the DTI undertook many inquiries and investigations before his time. Indeed, after three years of inquiry after inquiry on over-indebtedness, the Department undertook one more inquiry, the result of which was that another inquiry was needed. We do not want more inquiries; we want action.
The report found that many people were
"sleep walking into a situation of overcommitment."
That points to the fact that all credit card issuers should engage in responsible lending and provide customers with clear information so that they understand the consequences of the debt that they take on.
Another problem is that of minimum repayments. Customers receive monthly accounts that state that the minimum repayment is £2, £3 or whatever. However, we uncovered the fact that if borrowers paid back their debt at that rate, it could take as long as 22 years. Companies have a responsibility to give consumers a health warning saying, "If you pay back at this rate, it will take you x number of years." That is not too much to ask, and the DTI must press the industry on that point.
I turn now to the issue of inadequate credit checking and data sharing, which has a bearing on the tragic incidents of over-indebtedness and excessive numbers of credit cards which we have read about over the past few months. It has become clear that the credit checking system must be improved. Many lenders do not share positive information with credit reference agencies. That can make it difficult for customers to get credit elsewhere and, with the growing use of risk-based pricing, customers could be excluded from taking advantage of lower rates offered by competitors. All lenders must share positive and negative data with credit reference agencies. Someone could be out of their depth, with 17 or 18 credit cards, but if they were making the minimum repayment on each one, nothing would show up at the credit reference agency, so there would be no assessment of how likely they were to sleepwalk into disaster. That must be addressed.
A further issue is the problem of unsolicited increases in credit limits. The Consumers Association told us that
"it appears a common practice for card issuers to raise credit limits without first consulting the customer or even in some cases credit histories."
That practice tends to push people towards excessive spending and is therefore not in their interests or those of their families.
Finally, there is the issue of store cards, which proved fertile ground for the Committee. We uncovered what we described as a "cosy relationship" between store card
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providers and stores which results in card users not gaining the full facts about costs. We saw advertising leaflets for a store card which did not contain the APR—for the Minister's information, that was legal under the outdated framework of the Consumer Credit Act.
We also noted that consumers were not allowed to take away application forms. The credit card providers, especially GE Consumer Finance, got into a massive fankle on that subject in front of the Committee, telling us that the law did not allow people to take the forms away. However, we hauled in the OFT and DTI and asked, "What does the law say?" The law makes it clear that people should be allowed to take forms away. In fact, some Committee staff went to get an application form and were told that they were not allowed to take them away. That was nonsense and had to be changed, but it is sad that it required a House of Commons Select Committee to unearth that practice and change it.
We also saw welcome packs and monthly statements that contained no mention of the high interest rate that would be charged. Those rates tend to be between 28 and 30 per cent. In today's environment, how is it to anyone's advantage to pay 30 per cent. interest? I suggest that retail stores have slid out of their responsibility. It would be great if the chief executive of Laura Ashley, Debenhams or House of Fraser appeared before the Committee. We could ask them what their social responsibility to their customers is. Why, when the Bank of England base rate is below 4 per cent., are they allowing credit card charges of 30 per cent. to be imposed on their customers? They assure the quality of the products on their shelves, whether they be clothing, china or perfume, for their customers. Why can they not assure the quality of the financial products that are in their stores? They have a long way to go on that. I would like to see the day when the charges that people pay in stores are the same as the typical charges paid elsewhere.
Mr. Plaskitt: Does my hon. Friend recall that while we were examining the issue of store cards, and taking evidence on the matter, we received confirmation from GE that it had not reviewed or altered the interest rates on its cards since 1999, despite the fact that base rates have fallen substantially since then?
Mr. McFall: Exactly. My hon. Friend questioned the representative of the company about that and he was, to put it politely, flummoxed.
The Committee stressed the need for transparency and competitiveness. There must be transparency for there to be competitiveness. Even if there are 1,600 credit card suppliers in the market, the market is not competitive if information is not shared with the customer. There is no level playing field. The Select Committee is examining transparency and competitiveness, and that will inform our further inquiries.
These matters are important for the DTI, and I am keen to hear the Minister's comments on a range of issues: the summary box, transparency, credit reference agencies, the OFT's powers to monitor consumer credit licensing, and investigation of the payment protection insurance areas. I would also like an explanation of what happened to the CAT standards for credit cards proposed in January 2001.

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The industry should adopt a positive attitude towards greater transparency in the current review of the banking code, and it should work on developing scenarios that will show the cost of cards in pounds and pence for consumers, for inclusion in the summary boxes. It should introduce a minimum size of font for summary boxes, include the summary boxes in monthly statements, develop further transparency in the standardisation of complex methods of interest calculation, engage in more responsible lending practices, base lending on income and credit commitments rather than on payment history, and place restrictions on unsolicited increases in credit limits. It should also publish information on the revenues raised from transaction and penalty fees and ensure that application of those fees does not cause debts to become unaffordable, and it should improve the transparency of risk-based pricing.
We have a hefty agenda that we are addressing with vigour. That vigour has increased as the months have passed. We look forward to engaging with the industry again, whether it be in July or September, and with the Minister, to ensure that a fair deal for consumers is achieved. If it is achieved, that will be through the Treasury Committee, the DTI and the industry working together in favour of the customer.
3.3 pm
Mr. James Plaskitt: It is almost a year since the Treasury Committee began its inquiry into transparency in credit cards. It is interesting that during that year the general debate on, and public interest in, the issue of indebtedness and household indebtedness have increased sharply.
I shall lay a number of charges against the credit card industry. However, it is fair to say at the outset of my speech that one thing that for which the industry cannot and should not be blamed is the general increase in household indebtedness, which has become a concern. I am also happy to acknowledge that credit cards perform an important service for the majority of those who hold and use them. They are part and parcel of managing our personal finances, and it is difficult to envisage how we would operate without them.
Although I acknowledge their importance in the world of finance, as we took evidence for the inquiry, the fact emerged clearly that there are some serious charges to be levelled against credit card companies. They are clearly guilty of irresponsible lending to some people, and I think that they are guilty of supplying misinformation to almost all their customers. It is beyond argument that they are guilty of a lack of transparency, and in respect of some products, albeit by no means across the board, they are guilty of sharp practice—a point that I shall illustrate later.
In such an industry climate, some people will, sadly, be caught in the credit card web. We all know what that climate is. I am sure that I am not the only person in the Chamber who is bombarded by offers from credit card companies: I have had about six in the past month at my private constituency address, and a similar number at my flat in London. I do not know whether I am being targeted as a member of the Treasury Committee, but I do not think that I am alone.
The junk mail that comes through my door from credit card companies is stuffed with misleading promotional information, and it is evident that the
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industry carries out inadequate credit checks. Sadly, there have recently been tragic consequences when individuals caught in the credit card web have become deeply mired in debt. I do not lay all the blame for that at the door of credit card companies: individuals have some responsibility, which they must face. However, given what is happening, the rapidity with which the stuff in question is sent out and the misleading promotional material that goes with it, it is all too easy for someone in financial difficulty to be lured in, and some responsibility for that rests with the credit card companies.
As my hon. Friend the Member for Dumbarton (Mr. McFall) said, the industry needs to get its house in order. It is the responsibility of Parliament, Government and the regulators to be active in ensuring that that happens. We must do all that we can to end the industry's opportunities to exploit vulnerable people. We must ensure that the industry gives all credit card consumers a fair deal across the board. The inescapable conclusion is that they are not getting that now. What I have seen in the year in which we have been engaged in the inquiry leads me not to trust the industry to put its house in order on its own, I am not prepared to rely on Government exhortation of the industry, and I do not believe that voluntary codes alone will do the job. The industry has shown, in my view, a pretty contemptible attitude towards the public and consumer interest.
I said that I would give some of the worst examples of sharp practice. My hon. Friend partly pre-empted me by drawing attention to Barclaycard's infamous "0 per cent. for ever" offer, but it is worth examining briefly how misleading that promotional material was. With that offer, people were encouraged to transfer balances from another card, and those balances would enjoy the 0 per cent. interest rate. However, the terms and conditions went much further. The transferred balance qualified for the 0 per cent. interest rate only if a minimum amount of new consumption was levied on that card each and every month: the card required people to purchase £50-worth of goods a month to sustain the 0 per cent. on the transferred balance. Therefore, if someone transferred £3,000 from another card to the 0 per cent. Barclaycard in order to enjoy that 0 per cent. rate, and committed themselves to spending the £50 a month on new purchases but made only the minimum monthly repayment, by the time they had paid off the transferred balances— because the minimum payments went first on those, and never paid off the new consumption—they would have clocked up another
£2,850 of debt with Mr. Barrett's card and would have been charged 17.9 per cent. APR on that. That is how grotesquely misleading the "0 per cent. for ever" offer was. It took OFT intervention on the back of the Committee raising awareness of the offer before action was taken. In the end, the card was withdrawn.
I drew a second example to the Committee's attention—I am afraid that it, too, comes out of Mr. Barrett's stable. The Monument card revealed another example of what I can describe only as sharp practice. It, too, was promoted heavily on the basis of 0 per cent. interest on transferred balances and the attractiveness of no annual fee, and all the promotional material clearly suggested that the interest rate was a competitive 16.9 per cent. So far so good, but the problem was that someone could send off the application form believing

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that those were the terms and conditions, and discover only when the card was in their hand and they were ready to start using it that the interest rate applicable to their card was not 16.9 per cent., but 31.9 per cent. as a result of the company doing personal pricing. Someone would not know that that was going to be the case unless they took the trouble to read some exceedingly small print on the back of the terms and conditions. No possibility of the higher interest rate was clearly evident on the promotional front page of the offer. Risk-based pricing is therefore among the sharp practices that we must consider.
The third main example relates to deceptions in respect of the APR, to which my hon. Friend referred. We considered the position of someone who lined up four well known credit cards with exactly the same nominal APR—exactly the same interest rate—made purchases of exactly the same value with them, and proceeded to repay the debt with the same profile on each card. It would not be unreasonable to suppose that in those circumstances the charge for the credit would be the same for all four cards, but that was not so. The actual cash cost of the credit on the four cards varied by as much as 40 per cent. because of the small print in the repayment terms.
Sadly, while all those misleading offers were pouring through people's letterboxes and the risk-based pricing and distortions in APR were going on, all we heard from the regulators was a very muted "tut, tut." However, in the face of all the pressure, the industry has seized on the Committee's suggestion that it introduce the summary box. I welcome that: it is high time that that step forward was taken. However, as I said in an intervention on my hon. Friend, even if the industry reaches an agreement on the summary box and it is implemented throughout the industry, it will be but a small step towards solving the evident problems that emerged in the course of our inquiry. If solving the problems in the industry is a journey of a mile, the summary box represents but a few yards. We need to keep it in that perspective.
The sending out of credit card cheques is another industry practice that shows no sign of abating. Summary boxes would not even begin to touch that very serious problem in the industry. Credit card cheques are sent to about 16 per cent. of households—5 million households—and almost every dispatch of such cheques is unsolicited. Evidence suggests that in the sending of cheques there is some concentration on households that are experiencing some form of financial difficulty. The task force on over-indebtedness has considered the issue and found that only a third of people who received cheques in the post realised that they would incur interest right from the point of cashing them. We talked to APACS about that and it told us that it would make improvements that would be in place before March 2004. Interestingly, this morning I received an e-mail from APACS encouraging me to believe that the problems will be resolved. It said that checks would be made before cheques were sent out and the applicable interest rate would be indicated. APACS will refer these improvements for inclusion in the banking code. Those are small, but welcome steps.
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I have been looking for evidence of improvement in relation to credit card cheques. So far, there is none. I have been receiving credit card cheques regularly—I imagine that most hon. Members do. The most recent came only last week from Alliance and Leicester—the fifth time in recent months that it has sent me unsolicited credit card cheques. If I were unwise enough to bank them, interest would begin to accrue immediately, even before I went out to spend the money, but I have to work hard to find that out. The information is contained on the letter offering the credit card cheques, but it is in 8-point font at the very bottom of the page. Even with reading glasses, it is quite hard to spot. That crucial part of the deal and the bit that costs the customer money right from day one is not promoted, but almost concealed in the small print. I am also told in the same small print that I have less protection under the Consumer Credit Act 1974 if I use a credit card cheque than if I use the credit card. I am not told what protection it is that I have not got: I am simply told that I have less of it than I would have if I were using a credit card.
The introductory rate on the credit card cheque is 3.9 per cent. in the case of the offer from Alliance and Leicester, and is valid for just six weeks. What is the rate thereafter? To my complete astonishment I found that there is no information about the APR that applies to the credit card cheques in the accompanying letter and flier or the cheques themselves. I would have no clue if I started to use these cheques what the interest would be. The attached slip encourages me to use the cheques to pay utility bills. That is exactly the sort of web that I was talking about earlier. Anyone facing difficulties paying a utility bill who risks having their supply cut off if they do not pay it might be tempted to use these unsolicited cheques, without realising the cash and financial consequences.
Have we seen the improvements that APACS told us would be in place by March 2004? No. The fact that banks are issuing credit card cheques now— admittedly the example I am quoting is from last week, but that is pretty current—with no printed statement of the APR on them is unacceptable. That should be illegal. If credit card cheques are being issued unsolicited, that too should be illegal. I beg to differ at this point with APACS' promises that things are going to improve.
I have been studying the White Paper "Fair, Clear and Competitive", looking at the changes that can be made in the regulations. Paragraph 5.62 itemises offers that could be regarded as constituting irresponsible lending. They include unsolicited issuing of cheques that can be used to draw on credit card accounts. I suggest that we do not need to debate the matter any more, because the practice already exists, the White Paper defines this as irresponsible lending, it is still happening, and it must stop. The industry tells us that it will try to deal with the problem by implementing a better code of practice, but I have little hope. The industry has had its chance to face up to the misuse of the credit card cheque. It is still behaving irresponsibly, and voluntary codes will not do. We should therefore call time on unsolicited credit card cheques. The practice should become illegal.
My hon. Friend the Chairman of the Committee drew attention to store cards, which are one of the worst aspects of the industry—they are today's designer loan sharks. The interest rate on all of them is about 30 per

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cent. per annum—far in excess of the bank base rate—and has not been reduced since 1999, despite the reduction in the base rate. I understand that about £5 billion a year is spent using the 21 million store cards currently in circulation, and that 14 million adults in Britain have at least one store card in their wallet or purse. The sector is riddled with sharp practice. As hon. Members have heard, the interest rates are excessive. That is not simply my hyperbole: I remember asking all the bank chief executives who gave evidence to the Select Committee to define excessive interest rates. Three out of the four could define it—unsurprisingly, Mr. Barrett could not—and said that it was somewhere in the region of 20 to 25 per cent. It is therefore not my definition that the interest rate on store cards is excessive, but that of the bank chief executives themselves. However, the interest rates on store cards remain in the 30 per cent. plus range. In addition, in that sector we find non-compliance with the advertising rules, infringement of consumer rights, and stores denying consumers their legal right to take away the credit agreement to read. The market is clearly imperfect. GE Capital dominates the market. As paragraph 118 of our report states:
"GE might be making almost twice the level of profit as a proportion of transactions compared with the market-leading credit card supplier."
The prestige stores—many of them claim to be prestige—are doing themselves no favours by using these cards and associating themselves with this sort of credit practice. I therefore welcome the OFT's decision to investigate the market and the fact that it has rightly referred it to the Competition Commission.
The OFT's report on store cards makes very interesting reading. Its findings are dressed in fairly moderate language; even so, I shall cite some of its conclusions just to underline how serious the market failure is in this respect. Paragraph 1.10 states:
"the level of interest rates on store cards does not appear to be disciplined by competitive pressure".
Paragraph 1.11 states:
"retailers and card providers between them may be able to increase their profits by lack of transparency".
Paragraph 2.17 states:
"information on the interest rate was not available in around a third of cases, while information on penalty charges was rarely available."
Finally, paragraph 5.62 concludes:
"Our analysis… suggested… that there are structural features of the market, such as incumbency advantages, switching costs and sunk investments, which prevent. restrict or distort competition in the market for the supply of store card credit services to retailers."
The OFT's findings are pretty serious and can be summed up in one phrase: the consumer is being ripped off.
The OFT made some useful recommendations on store cards, about better pre-contractual information, summary boxes and statutory warnings. That is fine as far as it goes, but I am disappointed to see no specific reference—I hope that I have not overlooked it—to store cards in the White Paper, "Fair, Clear and Competitive". The DTI seems to be relying on the general recommendations that it makes in that document as sufficient to cover the particular circumstances of store cards, but I am not entirely sure
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that they will. Further discussion on codes and practices will not be enough, so I am ultimately placing my faith in the Competition Commission's findings, once it has concluded its survey on store cards. I am pretty sure that it will find evidence of an anti-competitive cartel that needs to be broken up.
Finally, I shall talk about the White Paper that the DTI has produced, which looks forward to a consumer credit market appropriate to the 21st century. It suggests that lots of the problems that the Treasury Select Committee unearthed can be addressed through secondary legislation. First, it is suggested that problems with credit advertising can be resolved though secondary legislation. However, I wonder exactly what will change as a result, and I hope that the Minister will answer that point in his winding-up speech. After all, what definition of "responsible lending" will be used when implementing the White Paper's proposals? When the Minister gave evidence to the Committee in November, I put it to him, at question 1172:
"And you take the view that the 0% forever does not amount to responsible lending and the issuing of unsolicited credit card cheques does not constitute proper lending either?"
My hon. Friend replied:
"I believe that the examples you give are not what I would consider to be responsible lending."
Given that we accept, with the Minister's authority, that unsolicited credit card cheques are not responsible lending. and as we are trying to implement the White Paper's proposals, we should see an end to the unsolicited issuing of such cheques.
Secondly, the White Paper suggested that the standardisation of APR can be achieved through secondary legislation—although not, I am concerned to see, the clarification and presentation of different interest rates, or a standard way of calculating interest rates on credit cards. They are both seen as desirable objectives; they are not achievable through secondary legislation, but set next to them is the phrase "to be decided". Given that they are important reforms to be achieved, if we are going to obtain a fair deal for the customer, I am anxious to know what steps the Government will take to deliver on those essential reforms, if we cannot do it through secondary legislation. The document also suggests that the form and content of credit agreements can be settled through secondary legislation. but will that really put an end to some of the store card practices or some of the risk-based pricing practices that I have illustrated? I raised the matter with the Minister during the evidence session. I said, at question 1199:
"So not talking about particular products, but the aspect across the industry that you would want to get rid of is the idea that the interest rate that you have signed up for is not known until you have signed up?"
My hon. Friend the Minister replied:
"I would expect you to know the interest rate when you signed up."
The fact is that, at present, with risk-based pricing, many customers do not know that, so that objective has still to be achieved.
Some of those matters are to be the subject of "further consultation", but I understand from the timetable set out in the White Paper that consultation has now concluded. I hope that the Minister will be able to give

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some indication of how the industry has responded and whether we can look forward to a permanent solution to these urgent problems. However, I find no commitment in the White Paper to bringing an end to the issuing of unsolicited credit card cheques. I have said before that we are all agreed that it constitutes irresponsible lending. If we do not bring it to an end, we will not have achieved responsible lending.
I accept that the White Paper is the first review of credit and competition in 30 years. As such, it is very welcome; it was badly needed. The gestation of reform is painfully slow.
Mr. Sutcliffe: I have listened with interest to the many issues raised by my hon. Friend. He should reflect on the fact that the Consumer Credit Act 1974 took six years to come to fruition. As he said, the market has evolved tremendously during the past 30 years. I acknowledge that there are questions about the timetable, but I am sure that he acknowledges some of the problems that we face.
Mr. Plaskitt: I certainly do acknowledge that. As I said, I am extremely pleased that we are undertaking a review. However, because of the pace at which the industry has changed and expanded, and given the practices that it has now been engaged in for a long time, I cannot help but think that we have waited rather too long to start a review. I am glad that we have started. However, I hope that the review will thorough and that it will be carried out as quickly as possible, not necessarily at a pace set by the industry—I know what sort of pace it would want—but a pace set by us on behalf of the consumer.
The industry is being dragged very reluctantly towards behaving responsibly. Its instinct is to do what it thinks it can get away with. The test of the Government's reform will be whether it results in the industry escaping, having thrown a few concessions to the Government and consumers en route. The alternative, through tougher regulation, is to stamp out all shady practices and put the industry's house in order, at last achieving responsible lending for all. I already detect a gap between some of the Minister's comments made in evidence to the Committee in November and the position outlined in the White Paper. If further gaps emerge between the promises given in the White Paper and what finally emerges in regulation, the industry will have won too many of the battles, and the consumer will have lost.
I am grateful that we have the opportunity to undertake a comprehensive and thorough review. It is a once-in-a-generation chance to get the legislation right and get the industry into order. I hope that we do not fluff the opportunity this time round, because what is at stake is far too important.
3.34 pm
Mr. Mark Lazarowicz: I draw attention to my entry in the Register of Members' Interests. I also declare that I am an unpaid board member of the Centre for Scottish Public Policy, which has received some sponsorship from Co-operative Financial Services.
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As I explained to you, Mr. Deputy Speaker, I hope to take part in business elsewhere in the Palace this afternoon. I apologise to hon. Members if I miss part of the debate. I hope that, with the leave of the House, that will be acceptable.
I congratulate the Chairman, my hon. Friend the Member for Dumbarton (Mr. McFall), and members of the Committee not only on their work in producing the report but, more generally, on scrutinising and holding to account the financial services industry, the Government and the regulators in the interests of the consumer. They have done so continuously and in a hard-hitting and incisive way, which is particularly important when decisions are required but the complexity of the issues obscures the essential points. Of course, many in the field are quite happy to obfuscate and to prevent us from focusing on the issues that require attention.
The effectiveness of the Committee's work is shown by the voluntary response that the financial services industry has already made to some of its recommendations. Like other hon. Members in the Chamber, I have often criticised practices in the industry, and it is only right that I should recognise the changes that it has made. I agree that the introduction—it has been slow, but it is nevertheless on the way—of the summary box and of proposals for a health warning have been made in recognition of the Committee's work.
As members of the Committee have said, the Government, the regulators and Parliament need to do much more to maintain pressure on the industry to act in the interests of the consumer. I welcome the Chairman's promise—hopefully it was not a threat—that the Committee would continue to take a close interest in the issue to see whether its recommendations were put into effect.
I endorse the comments of my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt) about credit card cheques. I am grateful to him, as I am sure the entire Chamber is, for sharing with us in a detailed exposé the material that he received about credit card cheques. Like him, I have come to the view that there is no way in which their marketing can be made acceptable. However one looks at the issue, the convenience to the customer on some rare occasions is vastly outweighed by the fact that such cheques encourage customers to extend their borrowing without fully appreciating the higher interest rates that they will incur. On those occasions when it might be appropriate to seek credit for a purchase, there will almost certainly be a better way of securing it than by means of a credit card cheque.
My hon. Friend gave the example of the offer that he received from Alliance and Leicester, and many other examples could be brought into the debate. Like many hon. Members, I received a briefing from Citizens Advice about the subject of today's debate. It drew attention to one of its clients, who had been sent a £200 credit card cheque with a letter advising him that the cheque was a "great way" to give his finances a boost and that all he needed to do was sign and date it and pay it into his bank account. What a great way to give one's finances a boost—borrowing money at perhaps 30 per cent. interest and putting it into a bank account that pays nothing like 30 per cent., but only half of 1 per cent., or slightly more if one is lucky.

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Marketing material that relatives of mine received suggested that credit card cheques would be an ideal way of paying for a Christmas present or providing holiday cash. As one can well imagine, it would not be sensible for all but the smallest fraction of the consumer market to use a credit card cheque in that way. There is therefore a strong argument for saying that such cheques should simply not be allowed. On the assumption that the industry would not adopt such a proposal voluntarily, the regulators and the Government will have to consider ways of ensuring that change is brought about.
The comments about store cards were also well made in the report, and I welcome the points made by the Chairman of the Committee and my hon. Friend the Member for Warwick and Leamington. Like them, I welcome the OFT investigation. I shall not repeat the points made about store cards, but in the briefings that I have had from consumer organisations, including Money Advice Scotland, store cards were identified as a particular problem. Like other Members present today, I have had personal experience of being offered such cards in a way that did not seem to give me full information about the costs that I would have incurred if I had been so foolish as to accept the offer.
One problem in the industry is that when a particular avenue is closed off by regulators, public opinion or another factor that influences companies' behaviour, there is a temptation to go along another road to try to extract money from the unwitting consumer. To some extent, that is true of business in general and will always happen. However, institutions, including major high street names with an international presence, should change their attitude, as well as individual practices, if we are to reach a situation in which they do not see the consumer as the legitimate subject of a rip-off, even if it is legally acceptable. They must change their approach, and like my hon. Friend the Member for Warwick and Leamington, I believe that statutory regulation is needed to encourage a voluntary response.
One example of how some sections of industry can change their behaviour to take advantage of new opportunities was drawn to my attention in the briefing from Money Advice Scotland. It was concerned by what it described as
"the direct targeting of people in airports, who are clearly there for another purpose, i.e. to travel."
It said that it had witnessed some "heavy sales tactics" at airports, in which sales representatives approach people on their way to flights to ask them to sign up for credit cards. The would-be customer may have been travelling for some hours to get to the airport and may be about to fly. Money Advice Scotland's view is that
"there is insufficient importance paid to the fact that this will be a purchase of credit. It is made look too easy".
In many cases, there is an added incentive of receiving a free gift. People are told that if they sign up for a credit card on their way to their holiday, they can have extra money to spend and also get a free wallet, pen or filofax. In such circumstances, people are not on equal terms with the representatives who are trying to offer credit. We would not allow such a sales technique in airports or railways for other professional services, so it must be challenged. It also indicates how regulators have to move quickly to deal with new practices as they develop.
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In the report, the Committee notes that
"the evidence indicates that the majority of households still deal with debt in a responsible manner and avoid becoming overcommitted".
As the Government acknowledge in their response, the general level of indebtedness has not increased substantially as a proportion of the gross incomes of the population. It is wrong to overstate the "nation in debt" line that is sometimes pedalled by the media and by Opposition parties.
Mr. Sutcliffe: I am sorry to spoil the flow of my hon. Friend's contribution. He is making a key point about disposable income, and the proportion of it that is spent on debt. My figures show that 7.1 per cent. of disposable income is now spent on interest payments, compared with a high of 15 per cent. in 1990. It will be clear later why I have made that point.
Mr. Lazarowicz: I am grateful to my hon. Friend for those figures, which underline the Government's economic record. It is important to make the point that, although is not a general problem for the country, over-indebtedness can be a great problem for the minority who are particularly vulnerable or who are affected by problems of debt. As we have heard today those can be very great in individual cases, many of which have arisen from, or been exacerbated by, the marketing and other business practices of lenders.
The report is about the transparency of credit card charges. That is one element of the solution to the problems that it highlights. Equally important is the drive for greater financial literacy. That is the flavour of the month, as it should be. I welcome the support of the industry and the Government in that regard. However, the Select Committee makes a valuable point when it urges the industry to increase its support for the work of citizens advice bureaux and other free money advice services. That is essential, and I know that the Government are taking suitable steps. I qualify my support by observing that, while providing a wide range of advice, we must ensure that there are not so many sources of advice that nobody knows where to go. The various services have to be co-ordinated.
We must bear in mind, as well as transparency, education and financial literacy, the barrage of publicity and marketing affecting every consumer. The industry must change its lending practices and its attitude. Above all, we need an effective and up-to-date regulatory framework. Not only must it allow us to deal with the cases that have been highlighted here and in the reports of interested groups in recent years, but it must be fast enough moving to deal with new practices and behaviour that, unless challenged at the start, will trap millions of people in unfair credit arrangements. We have all seen examples of such things in our constituencies.
I welcome the White Paper on consumer credit and urge the Government to ensure that primary legislation and the regulations necessary to put it into effect will be introduced as soon as possible. Millions of consumers cannot wait much longer.
3.49 pm
John Mann: First, I should put on record the bravery of your good self, Mr. Deputy Speaker, in being prepared to preside in this Chamber without a security screen to protect you from the masses, and indeed from the Minister.
I also apologise. I have notified the Speaker's office and the Minister that I may need to leave, depending on how long the debate goes on. The unusual event of a ministerial visit to Bassetlaw is taking place later. It is so unusual that I am always fearful of allowing any Minister to venture on to my patch without my presence.
As it is a time for thanks, I would also like to thank the credit card industry. Over the past four weeks, the industry has saved Parliament a modicum of expense, because as I was seeking to catch up with my colleagues as a new member of the Treasury Committee, I felt it appropriate to acquire copies of the various literature and propaganda issued to entice people to use credit cards. I felt that the most appropriate way would be to write to the companies and ask for copies. However, by paying more attention to the recycling bin kindly provided by Bassetlaw council and extracting papers from it, I found that the industry has chosen to honour me by sending me a plethora of offers over the past four weeks.
I am clearly very popular. Unlike my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt), who has received only six such leaflets, in the past month I have received an average of more than six a week—the most on one day was four. The 11 different companies with which I have been dealing in the case of one of my constituents, which has been fairly well publicised, have all chosen to send me their literature at my home address. I kindly thanked them. One went a stage further to help my research. I will return to that company at the end of my speech.
I intend to stick to one issue. I endorse the concepts, thinking and detail of the report and the notion of transparency. The debate is clearly long overdue and is one that other countries, such as the Republic of Ireland, are having at exactly the same time. It is an important debate and changes are clearly required, both in the public interest and in the interest of the industry.
When I looked at the tragic case of my constituent, Mr. Stephen Lewis, and at the cases of many other people who have written to me—I have referred those who were not my constituents to other Members of
Parliament—I saw a big difference between the attitudes
of the various companies. We should put that difference on the record. Some companies handle matters quite appropriately in terms of how they issue cards, the credit they make available and how they deal with problems, including the tragic problems in this case.
I want to put on the record some of the banks that handled my constituent's case well. Morgan Stanley was exemplary in its dealings with both my constituent and me. HFC bank was also exemplary and went further in engaging in dialogue with me over some of the detail. I will not refer to that now; at later stages and other proceedings some of the issues and dilemmas raised will be relevant, but they do not directly impact on the debate today. Mr. Adrian Hill, the managing director of HFC, has taken highly appropriate action. Mr. Philip Williamson, chief executive of Nationwide, specifies—
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the evidence backs that up—that his mutual takes a very cautious approach to lending. That is quite clear when we consider the case of my constituent. One of the ironies of someone being given 19 credit cards—I shall come back to that issue, as the number is now 20—by the industry is that comparisons can be made over a period in some detail. That means that those financial institutions stand out in their handling of the situation.
It would be wrong to discredit the whole industry because of the operations of some sections of it, but it would also be wrong simply to talk in generalities and not to name names, so I shall provide more names.
Mr. Sutcliffe: Before my hon. Friend starts naming names, his point about the industry is important. The good companies, the responsible lenders, the ones that do things properly—even though we may want them to do much more—must understand the benefit of doing the right thing in order to get the rogues out of the industry.
John Mann: My hope is that competitive pressures will begin to bear. It is clear from the media interest that this issue will run and run. Consumers are unhappy about the way in which the industry treats them. They want a proper and realistic choice. They want not to be ripped off but to be treated decently. There must be a comprehensive and understandable approach to issuing and using credit.
Barclaycard is a company that stands in the middle, because its dealings with me and attempts at dealings with my constituent—in intent, if not in delivery—have been exemplary. In a letter dated 2 April, Mr. Hoffmann, the chief executive, said that there was significant room for improvement in the credit card industry to allow issuers to make better-informed lending decisions and that the implications were industry-wide. He is absolutely right, and I am pleased that some of the leading players recognise that there is a problem to be addressed. Either the industry will address it or Parliament will; those are the two options.
Barclaycard has been quite proper in its dealings. It has been prepared to deal with me speedily, and Mr. Hoffmann has been prepared to speak and write to me directly. The content of his letters has been highly appropriate and his actions have been prompt, but they highlight the nature of the problem. On 6 February, he wrote to tell me that all the issues relating to my constituent had been resolved the previous November, but I learned that they had not been. In fact, Barclaycard had issued cards of which it was not aware. The problem was not with the whole industry but with one company. Further correspondence was required, and I received a letter dated 9 March, again telling me that the issue had been resolved.
Unfortunately, after all the significant publicity, a letter appeared from a credit-chasing company, Risk Management Alternatives:
"We have been instructed by our client … to collect the full overdue balance".
The letter is dated 19 March, after my constituent visited Parliament, after I had written and spoken to all the financial institutions and after we had met the Minister, the Chairman of the Treasury Committee and industry representatives. The letter continues:

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"Your account has been cancelled due to non-payment."
It is perhaps not surprising that there was non-payment some seven or eight months after my constituent's death. The same financial institution had said in November that the issue had been sorted out, yet a letter about non-payment was sent to my late constituent on 19 March, chasing what was in fact the 20th credit card.
Barclaycard had not been aware of two cards. I received another very apologetic letter on 7 April, which included a most interesting reason for not spotting the problem earlier: there was an error in the name. Was the error created by my constituent? No. it was an inputting error by Barclaycard, which changed the name by pressing the wrong key and therefore had not identified the additional card. There will always be such examples.
However, two other major financial institutions were also unable to identify when I contacted them how many cards my constituent had with them—I am talking about Royal Bank of Scotland and Lloyds TSB. The third one, which was the world's biggest financial institution—Citibank or Citigroup; it seems to have all sorts of names—denied vehemently that my constituent had two cards with it, even though I had the two cards in front of me. It claimed that there was only one. One has to question, when four financial institutions cannot identify how many cards someone has with them, whether there is a deeper malaise in the industry.
The least said about Citibank or Citigroup and my good self the better. I can sum up its attitude as the world's largest financial institution by quoting from a fax it sent me. It says that it will not answer any questions because
"there is not a return address or contact telephone number on your letter".
That is strange, as my letter was sent on parliamentary headed paper, the standard paper provided by House authorities to all of us. It was not the best of excuses.
I found that the best way to deal with Citigroup was to get a political pressure group in Washington to ring it up and tell it that if it did not sort out its problems, it would receive bad publicity on both sides of the Atlantic. Within 40 minutes, the issues were resolved. That sums up a lack of responsiveness in the industry, in relation not only to decency but to efficiency and competence.
I shall move on to MBNA. General Krulak and his successor as chief executive have written to and rung me on these issues. They seem to be strong supporters of the Treasury Committee. I shall quote from their letter as background information. They say that they use
"professional judgmental underwriting and credit scoring techniques to make the right decision. People—not computers—decide whether or not to approve an account."
The letter continues:
"They rely on sophisticated technology and behavioural scoring systems to assist them".
My constituent with MBNA had £;11,000 of credit card debt, all created within a two-year period.
MBNA states in another letter that when it granted my constituent his credit he had very little outstanding debt and less than the 5 per cent. debt to income ratio. Such a ratio seems reasonable for making a decision, but what exactly is meant by it? Is that 5 per cent. on one card? My research demonstrates that when my
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constituent got a second card from MBNA he had significantly more than a 5 per cent. debt to income ratio on the single card that he already had with MBNA, never mind the other dozen or so cards he had simultaneously.
The debt to income ratio is fundamental, and even more so because of letters circulated to, I suspect, several colleagues from the Treasury Committee by APACS, which refer to a debt servicing to income ratio. Hon. Members should consider that. I have heard of debt servicing to income ratio in the football world in the case of Mr. Peter Ridsdale, the former chief executive of Leeds United. He was able to tell the football world that he could handle his debt repayments because of the money that he had coming in. Unfortunately, he forgot to tell anybody that there was debt that had to be not just serviced but repaid.
My constituent was an exemplary client. I have letter after letter from the financial institutions saying how exemplary he was, because he paid the minimum payment. He kept paying the minimum payment on one, two, three, then 18, 19 or 20 different cards. Indeed, he ended up for a number of months drawing cash on one card to ensure that he paid the minimum payment on the next. We might say that that is an exemplary plus consumer. That is at the heart of the issue. He was not exceeding his credit availability but matching it; it was taken to the full, but not beyond. Having a credit availability that is three times someone's income is clearly not sustainable, even for a matter of months, for anybody, so the industry must decide what is an appropriate definition of debt to income ratio. That is quite fundamental and should be examined by the industry, and if not by it, by Government.
I omitted to tell hon. Members about the case of the company that went a stage further than merely sending me some literature in the past month. Royal Bank of Scotland, which was the only financial institution that was not prepared to sort out the issues, or to attempt to sort them out, with my good self on behalf of my constituent's widow, was doorstepped by my good self and many members of the media. We went to the front desk and asked to see senior people and, rather reluctantly, some personal finance executives were dragged out to meet us. Although that was recorded by television cameras and by other journalists, clearly I was not clear enough, because RBS thought that I was going to apply for a credit card.
In the past month, I have received a credit card statement from it. It is not a credit card that I have or know about. It has nil payment on it, because as I do not have the card, I have not yet managed to spend on it. One wonders what the next monthly statement will show. Mr. John Mann apparently has a credit card courtesy of Royal Bank of Scotland, and has had a statement in the past month. What on earth is going on in the industry? If it is happening to me, such practice is happening to other people, and it is quite unacceptable.
In my view, we need, first, a consolidated debt statement by the industry to the industry and to the consumer. I would be more than happy if that was an annual consolidated debt statement and the information was shared. Whatever is said, it is quite clear that the information is not shared efficiently or properly. As private discussions were involved in this, I will not name the people, and it would be unfair to do so, but I will say

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that a significant number of industry players have confirmed that there is not proper information sharing. The onus on them is to get their act together and to ensure that there is such sharing. My constituent could have been a fraudster, but he was not. He was an honest man who was extremely bad at handling his money and ended up losing his life because of it. He could have been a fraudster who was living in Spain or France having ripped off the financial institutions and the rest of us for a significant sum. There will be such people, because it is clearly easy to do. Not unsurprisingly, the industry does not highlight them, but it is in its self-interest to act.
Secondly, there must be an effective and agreed credit to income ratio so that people's credit availability is linked to the income that they receive. My experience of the concept is that it works reasonably well when it comes to the mortgage industry, and some might say it that it works very well. That concept should be working in this industry.
Thirdly, there must be a series of triggers for action. Something should happen a long time before someone has 19 credit cards and credit availability that is three times their income. That trigger is what we used to call the bank manager. Not that many years ago, if people went a little overboard in their expenditure, the bank manager would haul them in and firmly but politely point them in the right direction. Bank managers would use that key power ruthlessly. I recall from my limited experience of such dealings many years ago that bank managers would reduce the availability of borrowed money, not increase it, to keep the finances straight. In the credit card industry, it is quite clear that the opposite happens. When someone hits a problem, credit availability is increased.
Finally, independent debt counselling should automatically be triggered. By that I do not mean merely debt counselling at the end of phone, which requires a person to pick up the phone and decide that they have problems. That is not how the bank managers used to work. They would certainly not have accepted that it was for the customer to decide that they had problems. The bank manager would make a rational decision, looking at someone's financial history and situation. That system worked extremely well. The credit card industry must recreate that concept if it is to sustain its profits—RBS's profits were £8.5 billion last year—without the need for legislation from us. That is the choice: either the industry regulates properly or we do. The relevant legislation gives us the opportunity to do so. I shall propose such legislation if no one else does, and I trust that the House will back it. The onus is therefore on the industry to ensure that no such action is needed from here.
4.11 pm
Mr. David Drew: I do not think that you ever need security, Mr. Deputy Speaker. Long may it continue that we have open, honest and frank debates in here, and that the general public can see them, but not from behind a screen.
Continuing from the useful contribution from my hon. Friend the Member for Bassetlaw (John Mann), I have no intention of following him with examples of
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individual cases, although any constituency Member can do so. What he said was a cry from the heart. We feel frustration over the cases that come to us, partly because we want to deal with them locally. We may be working with the local citizens advice bureau, a legal centre or the Mothers Union, which does excellent work on the issue—I declare an interest in that I am a member. Like us, such agencies deal with individuals at the local level. However, we also deal with anonymous forces and people who operate only at the central level.
Our constituents feel frustration partly because they cannot talk to anyone. I know that they cannot go to their local bank any more, because my daughter works for Lloyds TSB—I suppose that I declare that as an interest, too. Accountability for the credit card issues that we are discussing is so far up the line that it behoves us to recognise that that is how the frustration starts. However, there is no instant remedy. It would be nice to think that some of the issues were national nowadays, but they could of course be international. The problem is a starting point.
This debate is appropriate now. I should like to pass on my thanks to the Treasury Committee, and in particular to my hon. Friend the Member for Dumbarton (Mr. McFall), its Chairman, because it has produced an important report that we keep coming back to. The Committee's doggedness shows any Select Committee that really wants to achieve anything how to do so. We all sit on various Select Committees that produce some pretty good reports, but unfortunately they will gather dust unless the Government pick up the issues. My hon. Friend the Minister has already given assurances that he intends to say some things in his speech that will, I hope, move things forward. However, things will not be moved forward unless people are assertive and clear about what they want to achieve.
I note in passing that, as compared with other debates that I have attended, the amount of material that has come through for this one shows that there is a great deal of interest out there, as one would expect.
4.15 pm
Sitting suspended for Divisions in the House. 5.6 pm
5.6 pm
On resuming—
Mr. Drew: The timing of the Divisions was unfortunate, as this is an important debate. Before the Divisions, I was saying how much we owe to the local people who work with us and give advice, because of the difficulties with contacting any of the credit card companies.
My hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz), who has long since gone, has been instrumental in the work behind the all-party group on debt and personal finance, of which I am a member. I want to plug that group, because some of the work that my hon. Friend and other members of the group have done brings home to other hon. Members, and the Government, the importance of this issue of our time. Some of us believe that private debt has replaced public debt as the subject about which we probably do not talk enough.

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I was interested to see the report—I do not know whether it was rushed out, or whether it happened to come out at this appropriate time—commissioned by the British Bankers Association, and delivered by Oxera. I know that other hon. Members have said that there is apparently no great scourge of over-indebtedness coming our way, but I want to raise a point on that issue. Having seen the table on late payments, I
would like to know—there is some indication of this in
the figures—the degree to which over-indebtedness is
concentrated among the poorest in our communities, because they are the very people who tend to get into difficulties with the use of credit cards as a means to pay off their latest debt. I hope that when more research is carried out, it will concentrate specifically on that group. Although the report may have been published earlier, or have been reissued, I received it only recently, so I shall not comment further on that aspect.
Paragraph 79 on page 37 of the Select Committee report goes to what I believe to be the crux of the matter. It says:
"Many lenders stressed that it was not to their commercial advantage to lend to people who could not manage the repayments; RBS told us that it was 'firmly against a lender's own interest to lend to a consumer who cannot afford to service the debt.'"
I wish that that were true. When I talk to people who are seriously in debt, and then talk to whoever has lent them the money, it seems that as long as the last lender can cover and ensure that the debt will be repaid, they do not consider what has gone before as being their problem. That is the crux of the matter. When organisations such as the citizens advice bureaux try to consolidate people's debt, they often take up the issue with the latest or more recent lenders, and those lenders appear to be almost oblivious of what has gone before. That needs to be clearly identified as being at the root of the problem.
I ask the Minister to examine that issue, in the context of our discussions about data sharing and trying to develop a more coherent approach. I believe that that is the most irresponsible aspect of lending—lenders not knowing what has gone before.
I shall make a couple of observations in relation to store cards. Affinity cards have not been mentioned—I do not know whether the Committee considered them. They are slightly different, because they pick up on people's loyalties, but I believe that they are worthy of examination. Many of us have a credit card either through the Co-operative bank or through our own political parties—it is the done thing—but others may acquire them through various other organisations and may be getting a raw deal because the industry is exploiting their loyalty to those organisations.
It is good that the hon. Member for Tewkesbury (Mr. Robertson) is present, because the comparative example that I intend to use in relation to store cards concerns Unilever. I imagine that the hon. Gentleman, like me, was invited by Unilever to Wall's in Gloucester, when the company's unwillingness to allow other ice cream companies to put their ice creams into the cabinets had been referred to the Office of Fair Trading. I believe that one can draw an analogy with store cards. If someone goes to a store, that store will offer a range of goods and also a store card, but it will offer only its own store card. That seems to me to be anti-competitive. If the Office of Fair Trading is examining other suppliers with regard to
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anti-competitiveness, should it not also examine that matter? If people want credit and want to take out a credit card, they should be offered a range of cards. There are parallels with mis-selling. That was what went wrong back in the 1980s, in particular, when agents were selling only the services offered by the people who were paying them.
My next point again arises from the work of the all-party group on debt and personal finance. My old friend, Marie Jennings, has done as much as anyone to promote the need for greater financial literacy in the UK. The area that we are discussing is a classic example of one in which the complication and confusion mean that the ordinary consumer is—without wishing to be pejorative—clueless about what is going on.
The Minister cannot speak for other Departments, but certainly the Treasury and the Department for Education and Skills should be acutely aware that warm words about financial literacy and consumer education are not enough. We should invest resources in this key area. It is interesting that we cannot agree even on what an APR is, but all children should have some understanding when they leave school of the difference between compound and simple interest and of what an APR is, so that they know what they will be asked to pay if and when they take out credit cards, store cards or affinity cards. I am sure that a Cabinet Committee is beavering away on the issue. It relates to some of the social exclusion work, which I am very proud that the Government have done. I think that the problem is much underestimated, given what we now understand.
As long as those issues are being dealt with, this has been a useful debate. I am sorry that it has been somewhat truncated. You might think that that is somewhat better, Mr. Deputy Speaker, because it means that I have had to keep to the point, and I am sure that Front Benchers will now do the same.
Mr. Deputy Speaker (Sir Nicholas Winterton): The hon. Member for North Norfolk (Norman Lamb) has advised the Minister and me that, because of circumstances beyond his control, following the activities in the main Chamber, he will have to leave shortly after he has spoken. We understand his predicament and accept it.
5.16 pm
Norman Lamb: I am grateful for your understanding, Mr. Deputy Speaker, and for that of the Minister. The situation involves a 12-year-old son outside St. Stephen's entrance at 5.30.
This is an important debate, although it is perhaps somewhat frustrating for us all that it lost a little of its momentum because of the suspension. I should say first that I speak both as a member of the Treasury Committee and as a substitute for the Liberal Democrat shadow Chancellor of the Exchequer, my hon. Friend the Member for Twickenham (Dr. Cable), who wanted to speak here but is in fact speaking this afternoon at the British Bankers Association on similar issues. I acknowledge the role of the Chairman of the Committee in pursuing the inquiry. He has been pugnacious and persistent and has very effectively led the charge for improving standards in the industry in the best interests of consumers. I pay tribute to him for that.

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We should all acknowledge, as the report did, that credit cards are a good thing. Used properly, they provide a flexible method of payment for short-term borrowing and have brought such flexibility to people across the income scale. We should welcome that. The purpose of the inquiry was not to attack credit cards, but simply to deal with some of our concerns about how the market operates. The redoubtable Matt Barrett was attacked mercilessly for what he said, but he gave the Committee some sound advice: he said that he would never advise his son to use a credit card for long-term borrowing. That is absolutely right and it was good that someone senior in the industry said that. He should be applauded, but he was attacked because it came out in a rather Ratneresque way. The message needs to reach people that using credit cards for long-term borrowing is a very dangerous business.
We have specific concerns about how the market operates. As other hon. Members have said, competition does not work effectively unless there is clear information and consumer knowledge and understanding of the product. That has certainly not been the case so far. I shall deal with four issues relating to how the industry operates, the first of which is transparency. The second is sales and marketing techniques—covered very effectively by the hon. Member for Warwick and Leamington (Mr. Plaskitt)— as well as responsible lending. Thirdly, there is the problem of the lack of financial literacy: our society has experienced a revolution in the availability of credit since the Consumer Credit Act 1974, but no revolution in people's education about the range of products available. Fourthly, I shall explore whether we should be concerned about overall levels of debt.
It is right to criticise the industry for its record on transparency. The charge against it is that it has been opaque and misleading, and the verdict is that it is clearly guilty. It is perhaps fair to say that not all members of the industry are guilty, but the problem is that the worst within it taint the whole industry and give it a bad reputation. It has taken the Treasury Committee inquiry to shake it into action and to make industry representatives accept that.
The Committee was also critical of the Government, who have taken too long to act. In an intervention, the Minister made the point that the 1974 legislation took six years to emerge. Frankly, six years are not needed —there is no reason why the work should take that long. The issues are complex, and I fully accept that it is important that we get the legislation right this time, but we need action now. We heard earlier about concerns about slippage, and I hope that the Minister will confirm that that will not happen.
The Committee was critical of the Office of Fair Trading, which has not been sharp enough in dealing with bad practice in the industry. There appeared to be a sense of complacency about the evidence that was given to the Committee, so it is also important that the OFT learns the lessons. There are signs in its work on store cards that followed on from the Select Committee inquiry that that is happening.
Some progress has been made. As the hon. Member for Warwick and Leamington said, there is good news on the summary box, but its introduction falls a long
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way short of achieving the transparency that we all desire. Virtually all credit card companies use the summary box on marketing material, but not on statements. The latter is another step that should be taken. To be blunt, summary boxes have very little value when different ways of calculating the APR are used and there are different ways of calculating the interest rates; it is impossible for the consumer to make a proper comparison. We are told that the Minister hopes to ensure that the regulation dealing with a single calculation of the APR will be in force by October. He is nodding and I am delighted to see that. I understand that we might see a draft statutory instrument in June or July, which would certainly be good news. However, I urge the industry to get on with agreeing a common interest rate calculation, because until we get that, even having a single APR will not take us much further forward.
On the transparency issue, I should like to say a word about scenarios. Throughout the inquiry, I pressed for all credit card companies to use common and agreed examples, and I was pleased that the consumer groups, such as the Consumers Association and the Office of Fair Trading, as well as several companies, including Nationwide, signed up to the idea of offering agreed scenarios. There was opposition—General Krulak of MBNA was a steadfast opponent of them, but he is gone now, which might herald a shift of position by MBNA. However, without being able to see the actual cost of credit in pounds and pence, consumers find it difficult to make a proper comparison of the cost of the various competing cards. We hear that there will be a competitive launch of scenarios, perhaps during the course of this year. That should be a challenge to the companies to get on with it. Let us see what they come up with and let them put pressure on the more recalcitrant companies to fall into line so that, ultimately, we are able to negotiate a common, agreed set of scenarios so that people can see the actual cost, in pounds and pence, of the credit that they take.
There are several other issues relating to transparency. I will not go into them because they have been dealt with already. I thoroughly endorse the points that have been made by other members of the Select Committee.
Store cards deserve a special mention. For me, some of the most disturbing evidence that we heard was from representatives of the store card sector. Some 14 million people now use a store card, and the average rate of interest is between 27 and 30 per cent., with many charging more than 30 per cent., which is ludicrous. It is fascinating to note that John Lewis and Marks and Spencer manage to provide store cards at a rate of interest that is substantially lower than the average. It seems to me, therefore, that GE Capital, the provider of store cards that have rates of interest around the 30 per cent. mark, ought to be capable of bringing its rate down. One hopes that more competition in the marketplace, perhaps as a result of the intervention of the Office of Fair Trading, might put pressure on GE Capital to deliver.
During questioning by the Select Committee, it was claimed that it was not possible under law to take the forms away so that they could be studied. We were also told that it was not possible to show the interest rate on

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the explanatory leaflets. Both of those claims, which were made by major stores issuing store cards, were proved incorrect. There is no legislative impediment to providing the information. However, even after a Select Committee report that condemned the practice, when the OFT went on a shopping expedition, it discovered companies that still refused to let the consumer take away the application form. That is unacceptable. However, this morning I went to the Army and Navy store on Victoria street and was able to take away an application form: when I did the same thing last year during our inquiry, my request to do so was refused. Progress is slowly being made. The Army and Navy leaflet has a summary box and it shows the rates of interest and the minimum payment rules. However, the interest rate is still 29.3 per cent., which I suspect we would all agree is somewhat excessive. I welcome the moves that have been made, but there is still clearly a long way to go.
On sales and marketing and the related issue of responsible lending, it was remarkably cavalier and self-defeating of Barclays, during the course of our inquiry, to promote a card that offered 0 per cent. for ever. The justification for that offer has been successfully dismantled by the hon. Member for Warwick and Leamington. Citizens Advice pointed to a series of key practices that highlight the extent of irresponsible lending. It sets out the first as:
"Look how fast it is to get a credit card"
and refers to a "30-second application form". Other practices include statements such as:
"Look how much we will lend you"
and
"Look at the low interest rates you might not get".
Citizens Advice lists all of the examples that demonstrate that irresponsible lending practices are still going on.
That is the sort of thing that brings the whole industry into disrepute. When companies such as Barclays, which, from the evidence that we heard, has a fairly prominent place in the rogues' gallery, indulge in that sort of sharp practice, the rest of the industry ought to condemn them and demand higher standards. It is up to us and the OFT to highlight examples of sharp practice, expose the wide boys and demand better practice.
Mr. Plaskitt: On the subject of Barclaycard and its 0 per cent. rate, I wonder whether the hon. Gentleman noticed that during the year when Barclays was promoting that offer, its profits from the credit card business rose by 17 per cent. to reach £722 million. Matt Barrett himself was rewarded as a result of that with a £2 million increase in his salary.
Norman Lamb: I am grateful to the hon. Gentleman for drawing our attention to that. It speaks for itself and probably sticks in the throat of many of the people who got themselves into debt as a result.
Barclays is making absolutely massive profits from payment protection insurance. There is plenty of evidence that such insurance has been mis-sold to consumers who would never be in a position to take advantage of it. That sort of practice, which has been exposed by The Guardian and many other newspapers,
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should be stamped out, and I have taken that up with the Financial Services Authority, which will take responsibility for general insurance in the new year. It is very important that its rules ensure that that sort of practice cannot continue. There is a duty on the industry to lend responsibly, which has not always been the case in the past. It has a duty not to inveigle people into debt or to prey on the most vulnerable. It should help those who get into trouble.
Citizens Advice has reported a 44 per cent. increase in inquiries in the past five years from people who have got themselves into difficulties. They support the call made by the Select Committee for the industry to increase financial support for free money advice. That is a critical point on which we need to keep pressing the industry. It is making substantial profits, as the hon. Member for Warwick and Leamington has pointed out, and some of that money ought to go towards the provision of free advice for the people who are most in need. Citizens Advice Scotland in its submission before the debate made the point that statements and other correspondence ought to make reference to free independent advice from agencies such as citizens advice bureaux.
On the question of consumer knowledge and financial literacy, Mr. Ron Sandler has recently been quoted as saying that the vast majority of consumers are confused and daunted when dealing with the financial services industry. There has been a pilot scheme in 300 secondary schools to ensure that children get education about financial services so that they can make informed choices. The Association of Investment Trust Companies has put forward a proposal that there should be a levy placed on regulated financial services firms to contribute to ensure that such education takes place. That is an initiative that should be pursued further.
On the question of overall debt, the Minister fairly pointed out that the proportion of income being paid in interest charges is significantly lower than it was in the early 1990s. However, there is an upward trend for two reasons: first, the level of debt is increasing and, secondly, interest rates are on an upward trend. There is a report in the Evening Standard tonight stating that compared to a year ago, there has been a 37 per cent. increase in personal debt, including a £484 million increase in spending on credit cards. That highlights the fact that the issue of private debt is a growing one. The hon. Member for Stroud (Mr. Drew) pointed out that there has been something of a transfer of concern from public debt to private debt.
Mr. Plaskitt: Does the hon. Gentleman accept that there is an important distinction to be made between secured and unsecured debt? The increase to which he refers is in secured debt, and reflects the increase in the value of housing. The growth level of unsecured debt is very steady and, if anything, is falling slightly.
Norman Lamb: There has been growth in both secured and unsecured debt. The hon. Gentleman is right to draw the distinction, but the concern is that the most sensitive element—borrowing on the value of the house—carries a risk. There is a significant and growing body of evidence to that effect. I put the risk at less than 50 per cent., but if interest rates continue on their

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upward trend, we could get a house price crash. In evidence that the Committee considered following the Budget, the International Monetary Fund made the point that there is a crash in 40 per cent. of examples of house price bubbles. We have to take that concern seriously. If there is an increase in interest rates, the pressure on family budgets from both secured and unsecured debt might result in increased problems in making payments.
There are two issues in that respect. First, there is the enormous personal concern of those families who get into difficulty. However, there is a wider concern. If interest rates increased and there was a crash in house prices, a slowdown in consumer spending would be inevitable. The economic growth that we have experienced and enjoyed in the last few years has, to some extent, been driven by the consumer sector. If that were to slow down as a result of the combination of debt and increasing interest rates, it could have an impact on the wider economy. That is an issue that we need to debate. We must consider what some experts have described as "the overall balance sheet" of the national economy. The Government must take that seriously into account.
As the Chairman of the Committee said, the report is very much a progress report. We need to see far more progress from the industry. We need it to agree to show the cost of credit in pounds and pence. We need it to agree on a basis for calculating interest. We need an end to the unsolicited supply of credit card cheques. We need an end to misleading marketing in the sector and we need a commitment to provide more financial support for free advice to those who get into difficulty.
From the Government, we need a commitment that there will be no slippage in the timetable to put the long-overdue reforms in place. That is no criticism of the Minister, who has only been in post for a few months. It is time for action. We need a modern and effective regulatory framework for the industry, and we need the Government to work with the industry on school curricula to ensure that we get the financial education to improve financial literacy for our population. Finally, we need the Office of Fair Trading to be much more alert to abuses in the sector and much tougher on sharp practice.
As the Chairman has said, there will be no letup from the Committee in driving up standards in the industry. It is very important. Progress has been made, but there is still much to be done.
5.39 pm
Mr. Laurence Robertson: I speak as the Opposition spokesman on, among other things, consumer affairs. This is one of the issues that cross over between the Treasury and the DTI. I pay tribute to the hon. Member for Dumbarton (Mr. McFall) not only for the way he introduced the subject, but for the work that he and his Committee have done in producing what I found to be an extremely interesting and informative report. It is a pleasure to take part in the debate.
In a free society, borrowing is a useful and necessary tool. It finances homes, cars, businesses and, therefore, jobs and can help people through hard times. In a free
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society there is a right to borrow money. However, I qualify that by saying that whether borrowing is good or bad depends on the need to borrow and the reasons for doing so. My grandfather always used to tell me, "When you are in debt, you are in danger." That is a truism, although I stress that in many cases sensible borrowing can be productive.
We have heard that the level of debt is perhaps not as important because of low interest rates, but we have also heard that some people are paying high interest rates. It has been said that about 7 per cent. of people may be considered to be highly indebted, but a report in the Financial Times this morning suggested that the figure may be only half that. I am concerned by those figures, and there has been no attempt today to play down the seriousness of the problem.
In a typically enlightened and deep-thinking speech, the hon. Member for Stroud (Mr. Drew) referred to the fact that people who cannot afford debt may be becoming more indebted. From my understanding of the report, there was a slight increase between 1995 and 2000 in unsecured debt, as a percentage of income, for those earning more than £50,000 a year; however, for people earning less than £11,500 that debt doubled. That is a worrying trend. Perhaps more worrying is the fact that unsecured debt as a percentage of income for the over-65s has almost doubled. I understand, from work done by my researcher, that a quarter of people who go to citizens advice bureaux about debt have also seen their doctors about the problems that debt has created in their lives. That is a big problem.
There are good and bad reasons to borrow. It can seem okay to borrow money if one is earning, but the problems arise when circumstances change. I do not have a credit card; I use charge cards. That is primarily because I do not trust myself with credit cards—I would rather have a card that compels me to pay the amount off the next month, frightening though that sometimes is. I have been in a position in which I was not deeply in debt but had debts to the point that when I received my pay cheque each month it was disheartening to think how much of it had already been spent. That is not a good feeling.
The vulnerable, such as the low-paid and pensioners, are most at risk because they have less chance to pay the money back, especially when things go wrong. Perhaps those categories of people are less able to understand the complexities of the market. Some of them might be more vulnerable because they cannot get what might be termed "respectable" credit and therefore go to people offering high interest rate charges or loan sharks. That aspect of the economy is a massively complicated subject.
A few months ago I decided to buy a new car. I had agreed everything, but when I went to pick it up the salesman told me to sign a five-year agreement. I said, "Hang on a minute, I don't want a five-year agreement, I thought it was a three-year agreement." He said, "Oh no, this is five years", so I said, "Well, thanks very much, I am going to do some shopping." I got a phone call shortly after that—they were evidently panicking that they would lose my custom—saying, "We have found another way around it. You can cut the agreement off after half. If you have paid half the amount owing, you can hand the car back and there is nothing more to pay." I, like most people. was not aware of that arrangement

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and the chap trying to sell me the car said that he was not aware of it. My point is that the market is so complex that people, especially those in the vulnerable groups, may not understand that there are choices, although their choice could save or lose them thousands of pounds.
We have become accustomed to not concerning ourselves too much with the interest rates and bank charges that we pay; it is so easy to forget how much we are paying. Hon. Members may remember that, quite a while ago, there was an advert for a bank—I cannot remember which—in which someone on the high street asks for change for a pound, and is given 90p. The advert then shows the people arguing about the remaining 10p. The point that the bank was trying to make was that people will argue over the 10p, but they will pay charges without realising that they are doing so, to the tune of hundreds of pounds a year. That was a powerful point.
Who can wonder that we get into so much debt when invitations to borrow money come to our house practically every day? We can borrow through loans, credit cards, store cards or overdrafts. We may even get letters saying that we have won prizes, and it is only when we try to claim them that we find we have to spend money to do so.
Another thing that has caused debt to grow is the easy availability of not only mortgages but remortgages. When we get to the end of a five-year deal—and it may have been a good deal—we may remortgage. Say someone borrows £100,000, or more, for a house; after five years, when changing that mortgage, they might borrow £110,000, just to splash out on a holiday or something. It is very easy to accumulate debt in that way. The fact that there are so many mortgages available, and that there are so many options for the consumer, is great. It must be; it is about choice and availability. However, there is a slight downside to that, as I have just described.
Another issue that bothers me is interest rates, about which we have heard so much. The APR almost seems—no, is—an irrelevance, because it can be calculated in different ways. It is totally misleading. There are many other misleading things, such as store cards. When people take out a store card, they get a discount on what they buy the next time they go to the shop; but they also get hefty interest to pay unless they pay up front.
I am concerned about the proliferation of unnecessary credit. Although I accept that, in a free society, people are free to borrow money if they want to, the increasing levels of credit and debt are not necessarily good. It seems that we are able to borrow ever more money, without there being a relationship between what we borrow and our ability to pay. Many hon. Members talk about the council tax being unfair, because it does not relate to ability to pay, and that may well be a solid argument; but it seems that, these days, the credit industry does not take account of that ability, either.
A friend of mine was working full-time and had a certain credit limit. He was then made redundant. The credit company was not to know that, and upped his credit limit. Then he got another job, and it managed to up his credit limit again. Then he went part-time, and it
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was upped again. He retired, and the company upped it again. There was absolutely no correlation between his ability to pay and what he was allowed to borrow.
I understand that someone who has never borrowed money may sometimes find it difficult to do so, because they do not have a good credit record. Of course, they do not have a bad credit record either. That seems a strange way of running the industry.
One or two hon. Members have touched on the insurance charges paid by those unlucky enough to have credit cards—as I say, I do not. I got a letter on that subject from a constituent this week. I know that many people pay insurance and are not quite sure what it is for. When they are made redundant, they find that they are not covered by the insurance that they paid for, and they cannot get that money back. That needs to be looked into, too.
Also, money that goes into paying off loans and credit is not being put into savings. What worries me as well as the increasing debt is the reduced levels of savings. That cannot be a way to ensure security as people get older. I am also bothered by the lack of checks, a point that the hon. Member for Stroud touched on. The sale of goods process is protected in so many ways. Quite rightly, there are regular inspections of schools and factories, and nowadays there are inspections of other financial services. There has been quite a clampdown, in many ways.
The fact that a loan is an invisible product should not mean that it is not subject to the law and to checks to ensure that its sale is being carried out in the right way. It is because loans are invisible, so to speak, that they seem to escape the kind of rigorous attention that is needed. I do not want to keep quoting the hon. Gentleman, although he is my neighbour in Gloucestershire —I will probably feature in the local newspapers more than he if I keep quoting him—but he was absolutely right when he talked about the lack of a personal touch.
I cannot phone my bank now; if I try to do so, I have no idea where the person I am speaking to is. They may not even be in this country. I say nothing against the service that that person may offer, regardless of what country they are in. However, it used to be nice to phone the bank and speak to somebody who knew a little bit about my account and my record. That service is just not available now, and we should regret that. I am sure that it has added to the problems that we now find.
Where does that leave us? Where do we go? I do not know whether I should say this, but I do not know whether I envy the Minister his role, because this issue is so difficult to sort out. We have a challenge. We have the freedom to borrow, and, as I said, if borrowing finances the right things, it can be a good thing. We have to be free to borrow. I have to be free to go to a bank, and if the bank wants to do business with me, it is free to lend me the money. I believe in freedom; that is why I joined the Conservative party. I believe in extending the freedom of the individual to do, basically, as he pleases, as long as that does not interfere with or damage other people.
However, against that is the need to protect people, not just from themselves, but from people who might rip them off. That is the difficult balance that has to be struck. I do not think that the Minister has an easy job.

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I am sure that he is up to it, but I do not envy him it. The best thing that he could do—and again, my thunder has been stolen by previous speakers—is to promote education: to start teaching people what the issue is all about. There are probably two ways in which we can do that.
I engage in consuming alcohol, in smoking and in gambling, and I have no intention of giving up any of them. However, there are constant warnings about the dangers of those three things. There are helplines, and all sorts of things that warn us against doing them. However, there do not seem to be the same sort of warnings against getting into debt, and that is something that we should think about.
As has been mentioned, these days school does not seem to teach the practicalities of life; it probably never has. We do not seem to teach people the things that they need to know. I am not knocking the teaching of Arabic or anything else, but I think that as a country with a state education system we ought to make sure that school prepares people for the outside world. I always thought that it was meant to do that, but it does not at all, and it needs to start.
There are dangers now in the world which did not exist many years ago, so there is a great need to teach people about them, and about the opportunities that borrowing affords. I hope that we can move towards that. That is not the entire answer, but I believe that it is a start.
5.54 pm
The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe): I congratulate my hon. Friend the Member for Dumbarton (Mr. McFall) and the Select Committee on their excellent report. From the quality of the debate this afternoon, it is clear that the members of that Committee have gained an insight into the issues that need to be faced. The examples that they have given show how important the report has been. As my hon. Friend says, it is a work-in-progress document.
I will not go into a long speech, because of the broken-backed nature of the debate that we have had, owing to Divisions. That does not mean that I am trying to duck the issues. It is clear in my mind that the Treasury Committee will ask me to appear before it to discuss the way in which the Government are trying to deal with consumer credit.
I enjoyed—perhaps that is an unusual word to use—the experience of appearing before the Treasury Committee when the issue had a high profile or when it was making it such, given those who were before it. I do not doubt for one second that the report has already helped me in what I am trying to do as the Minister responsible for consumer affairs in sorting out what hon. Members describe as a difficult area.
Mr. McFall: May I put on the record my appreciation and that of the Committee of the Minister's helpfulness in the inquiry. I have had several meetings with him at the DTI and he has committed himself to keeping me, and hence the Committee, informed about his
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negotiations with the industry, for which I am grateful. I look forward to that communication continuing. It is important and will help to achieve a good end result.
Mr. Sutcliffe: It is vital, and shows that, when Parliament works well, the Select Committee process is ideal. It helps the Government achieve their targets. It is also a critical friend and helps us to sort out the detail. Many issues have been raised this afternoon, and our debate will help us move forward with the consumer credit Bill for which I hope we will have parliamentary time. I intervened several times to show that I have a commitment to ensuring that the route that we set down will deliver the massive change that we proposed in the White Paper to meet hon. Members' aspirations. I shall touch on some of the challenges that have been issued.
I hope that the Treasury Committee will recognise that I am not attempting to duck the issues by truncating my speech. I want to explain our work in progress, which we shall develop. The hon. Member for North Norfolk (Norman Lamb) referred to the fact that the hon. Member for Twickenham (Dr. Cable) was at a conference this afternoon. I attended it this morning. It was held by the British Bankers Association, and was on responsible lending. It is a major step forward. Let us consider the participants at that conference: there were representatives of the industry, of consumer associations and of the Government, and other politicians talking about key issues that affect the country.
The consumer credit White Paper was accepted and acknowledged in December, when it was published by my right hon. Friend the Secretary of State, as a major step forward in considering consumer credit, which has not been examined for more than 30 years. I wish to make a point about the six years that it has taken to get these matters in place. At that time, one credit card—Barclaycard— accounted for an annual debt of about £32 million. We are told now that there are at least 1,500 credit cards—and probably more—and that the debt is considerably greater. The way in which the marketplace has developed has made it a complex area. As has been said, if used appropriately, credit can be a force for good. Most people can handle the use of credit.
The Government's intention in the White Paper was to honour their manifesto commitment to tackle loan sharks and locate the other end of the scale when people could get not get mainstream credit. We are trying to find ways in which to deal with people who charge those massive APRs that we all know about and who are, in some cases, involved in criminal activity when dealing with individuals. As the White Paper evolved, some criticism was made about the delay, but that was necessary given the range of matters that had to be considered. It is important that we considered how to deal with loan sharks, and I am pleased that the Government have introduced pilot projects in Glasgow and Birmingham to examine what happens, bringing agencies together so that the police, trading standards and local authorities are involved. That means that we can tackle consumer credit issues at that level. I respect the fact, however, that the Select Committee's report was principally about credit cards.
Mr. Drew: The White Paper is important, but the Treasury also commissioned the Cruickshank report.

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What liaison is the DTI having with the Treasury about the critical comments in Cruickshank, which put the onus on the banking industry to put its own house in order? Is that liaison happening as well?
Mr. Sutcliffe: Yes, a great deal of work is going on. The Treasury Committee has helped that by asking Treasury Ministers about the relationships across Government when they have appeared before it. I am happy to report that ministerial teams, including that on over-indebtedness, are made up of representatives of a wide range of Departments. I have discussions with the Financial Secretary about the issues in the Cruickshank report. As my hon. Friend the Member said, a great deal of work had been done on inclusion with the various Cabinet Committees that are in place.
The White Paper concentrated on creating transparent markets, because the key point is transparency. Our aim is responsible lending and consumers knowing what is in the packages or products that they are being offered. It is about creating the fairer framework that hon. Members have mentioned for both the lenders and the borrowers. It is also about developing a strategic approach to minimising over-indebtedness.
I accept that there are concerns about the pace of reform, but I stand by the commitments on the APR and advertising that I gave to the Select Committee. Regulations will be coming out in the near future, and I give the undertaking that we will work closely with the Committee on them to ensure that hon. Members have appropriate sight of them and that we are going down the right route. We will also be working hard to fulfil my other commitments.
I do not want to mislead hon. Members, and there are issues in the industry. One thing that I have tried and will continue to try to do is maintain the consensus. Consumer groups are working with us and have welcomed the White Paper, as has the industry. When we get down to the nitty-gritty of the regulations, codes of practice or whatever we feel is the appropriate instrument, I want to take people with us. I have told the industry that when evidence proves that there is an issue concerning systems, for example, I will be prepared to examine it in the context of the form and content of agreements. I am prepared to do that, but not to be hoodwinked or in a position of weakness. We want the momentum to continue.
Providing that there is parliamentary time, we will need a consumer credit Bill to deal with many of the issues.
Mr. Plaskitt: While the Minister is on the subject of sticking to commitments, I shall put to him the question on credit card cheques that I put to him in the Select Committee in November. I asked whether he looked forward to seeing an end to the unsolicited dispatch of credit card cheques. His answer was, "I would hope so." Is that still the case?
Mr. Sutcliffe: As my hon. Friend would expect, as I have developed into the role of ministerial office, I have been exposed to the arguments from all sides of the debate. I will examine the issue of credit card cheques in the context of firmly believing that what I said in the
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Committee was right. A better approach would be for consumers to know what they are letting themselves in for. We are looking for pre-entry agreements before people sign up. We must debate with the industry how credit card cheques can be used appropriately. I am not wriggling—we must have detailed discussions when we consult and work through matters. If we want clear and transparent rules, my hon. Friend's suggestion for credit card cheques will not be appropriate. There may be an appropriate way for dealing with credit card cheques, and I am sure that we will return to the subject.
The point has been made about the need for transparency in the summary box and in the calculation of interest and APRs. It is about responsible lending and the role that we and in particular the Office of Fair Trading can play. Through the licensing regime, we give powers to the OFT to ensure that the appropriate people are lending. It is a major step forward, and I think that hon. Friends on the Select Committee will appreciate that.
I have been considering placing a ceiling on APRs, but I have not yet made a decision about it. As my hon. Friend the Member for Dumbarton said, in addition to APR we should consider other charges. I want to ensure that the borrower knows the full implications of a product, because various selling techniques offer a lower APR but hide other product charges. It is important that all information is available to the consumer.
I wholeheartedly agree with the points made about penalty charges, and we must to continue to examine them. The OFT is considering issues about store cards as a direct result of what the Select Committee has done.
Education is probably the biggest issue that I wish to discuss. The attitude to credit has changed dramatically, and I agree with all the hon. Members who have talked about the need for education, but what comes first—money advice or debt counselling? I would like to thank the industry-sponsored bodies and the consumer groups that are tackling the issue of education in schools and communities and giving people advice and support.
Mr. Laurence Robertson: Before the Minister leaves the subject of education, will he say whether he believes that there is any mileage in warning people of the dangers of debt? We warn people about drinking, smoking and gambling. Although borrowing can be used for good, it is also terrible to be in debt when one does not have the ability to make repayments.
Mr. Sutcliffe: I agree, and that point relates to the freedom within society and the right to choose to which the hon. Gentleman referred earlier. One has the right to choose properly only when one knows exactly what is on offer. Selling and presentational techniques have hoodwinked people—and it is not a matter of social class: surveys show all people's confusion about the nature of products.
There are issues about disposable income, and that is the reason why I cited the figure about that earlier. However, we must also reflect on the state of economy, with its low interest rates and its stability that gives people the confidence to borrow.
We heard warnings from the hon. Member for North Norfolk, who asked what would happen if interest rates were to rise significantly. The hon. Member for

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Tewkesbury (Mr. Robertson) will remember that interest rates were much higher when his party was in government.
The Select Committee has asked me to consider certain issues. I shall do that, and will try to stay on track. It would take much longer than we have allocated
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to us today to go through all the detail, so I shall finish by saying that it is work in progress. The report is an important piece of work and we look forward to working with the Committee again.
Question put and agreed to
Adjourned accordingly at eleven minutes past Six o 'clock.