Mark Lazarowicz: Edinburgh North & Leith

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	Consumer Credit
	Mr. Mark Lazarowicz (Edinburgh, North and Leith): It is a pleasure, Mr. Cook, to speak in a second debate in Westminster Hall today. I begin by drawing attention to my declaration in the Register of Members' Interests. I am also an unpaid director of the Centre for Scottish Public Policy, which recently received sponsorship for a project from Co-operative Financial Services. Hon. Members who know of my interest in these issues will be aware that I have spoken from time to time on debates on this subject and have put my name in the ballot for the draw for Westminster Hall debates. Perhaps I should now start doing the lottery regularly, given that I have managed to come out of a ballot only two days after the publication of the White Paper on consumer credit and at the same time as the pre-Budget report. It certainly makes the debate timely, even if it faces competing attractions elsewhere. The White Paper has been a long time in coming, but that is understandable given the complexity of the proposed measures. I am glad that the time was taken to ensure that the package is comprehensive and will go a long way to tackle the problems that many of us have raised here. The White Paper is valuable not just in what it proposes, but for the information it provides about the impact of heavy levels of debt on individual consumers. Getting into debt does not just affect people's pockets; it can have severe personal consequences. The stress can affect people's health. High levels of debt can cause marriage and other family breakdowns. The consequences of over-indebtedness are often worse for the lowest income groups who are more likely to have debts with serious repercussions such as eviction, imprisonment, disconnection or repossession. The consequences of getting into debt can be much worse for such people because they are less able to reorganise their lives in the way that people on higher incomes can. Debt affects the affluent and the poor alike; but escaping the jaws of debt can be much harder for the poor, particularly if they fall prey to loan sharks. Some legal lenders focus on the poor and charge excessive rates of interest. In any debate on debt or credit it must be emphasised that debt is not bad by itself. Most of us now have a mortgage and as a result live in accommodation that we could not have enjoyed unless we had been saving for 20 years or more. Borrowing and lending is at the heart of economic activity. The problem is not debt but over-indebtedness, with people being dragged into debt that they cannot sustain and which has serious consequences. People get into debt for many reasons and there are many solutions to the problem, but too many people are encouraged, or enticed, into entirely unsuitable credit arrangements and that is a major cause of excessive levels of debt. Cracking down on the businesses and the business practices that bring that about is a major solution to the problem. That is why I welcome the White Paper, and why I wanted to raise the issue of consumer credit again in Westminster Hall. In the time available, it will not be right for me to comment on every aspect of the White Paper. I shall highlight four areas in which I support the proposals in principle, and suggest ideas—and how they might be implemented—that can be developed in detail. I hope my hon. Friend the Minister will consider them; if he cannot respond today, I hope that he will do so on another occasion. First, I strongly welcome the proposal to make lenders provide standard information, such as the so-called honesty boxes. It is vital that information should be provided in that way. I am glad that the Government and the industry have taken that initiative and I congratulate the Nationwide building society, the first institution to take up the idea. Customers need to know the real rate of interest that they will pay on a loan or a credit agreement and the real cost to them of buying goods or services on credit. They need to be able to compare like with like and they should not be bamboozled by clever language or glossy advertising designed to obscure the reality of the financial deal that they are being encouraged to sign. The key is that the information provided must be simple and easy to understand. It is important to be transparent, but transparency loses much of its appeal if it is accompanied by excessive complexity. There is little point in producing so much information that few people bother to read it, and it cannot be effectively drawn to people's attention. I hope that the Government and the industry take that on board when the proposals are developed in the next few months. There is an argument that if products are so complex that the essential details cannot be set out and explained simply, clearly and succinctly, they should not be on sale to the general public. I should like the Government at least to consider that point. I am pleased that, in the White Paper, the Government are proposing to widen the current definition of extortionate credit terms. The law already allows loans of that type to be struck down but, in 25 years, few successful challenges to credit agreements have been made. It is disappointing that there are no proposals in the White Paper for extending the definition, but I welcome the fact that the Government have set out a clear timetable for introducing such proposals. How the definition of extortionate credit is extended is crucial to the success of the strategy in the White Paper. If the redefinition is broad enough, it will encourage lenders to exercise their own self-discipline, which would go beyond any formal regulation by the regulators or by Government. Lenders will be much less likely to risk advertising and selling products that they know are, to be blunt, dodgy—even if they fulfil the strict terms of the rules—if the products are at risk of being struck down later. Extending that definition is crucial to the success of the Government's package. Malcolm Bruce (Gordon): I apologise for missing the start of the hon. Gentleman's speech. I have just struggled in after taking two hours to get from Heathrow. He makes an important point. Does he acknowledge the Government's difficulty in this matter? They want a definition that deals with cowboys who rip people off but does not destroy the cash, small-debt market. Interest rates are not the only measure and the Government must get the balance right. Mr. Lazarowicz: I accept the hon. Gentleman's argument. That balance must be struck, which is no doubt why the consultation on the details has still to take place. However, I was talking about the type of offer or arrangement that everyone knows is wrong or dodgy, but which does not lend itself to the type of solution that the law provides. We must make it clear that such an agreement will not stand up and can be challenged successfully. What is described as a "stakeholders group" will be consulted on the proposal. I hope that because I have mentioned that group, my hon. Friend the Minister will give an assurance that when he sets it up, it will include representatives of consumer and advice organisations from Scotland, given that the financial sector in Scotland is so important and, of course, the separate Scottish legislation and legal system covering some of this sphere. The Minister for Employment Relations, Competition and Consumers (Mr. Gerry Sutcliffe): I do not want to stop the discourse that my hon. Friend is unleashing on us, which is welcome, given the White Paper. On the point about the body and Scottish representation, I can give that undertaking now. Mr. Lazarowicz : I welcome that assurance, which will be welcomed also by the sector in Scotland. Something must be done about the way in which some lenders market their products. If we spend any time watching daytime television and reading adverts in newspapers, time and again we will see advertising that is designed to prey on the poor and vulnerable. I strongly welcome the Government's proposal in the consultation documents accompanying the White Paper to tighten the rules on consumer credit advertising, but again I have one or two doubts as to whether the proposed new regulations will go far enough. These suggest, among other things, that advertising must be in plain English. With some adverts, the problem is not that they are not in plain English; they are often very plain indeed. The problem is the way in which they are set out and the practice of giving the impression that the service offered—perhaps, say, by a debt management company—is a public service rather than a commercial offer. I am worried that it is the nature of the shadier end of the business that people will always try to get round whatever rules are designed to prevent that practice. I wonder whether powers should be given to an appropriate regulator—be it the Financial Services Authority, the Office of Fair Trading, the Department of Trade and Industry or even local councils—to step in and issue a stop notice to end such advertising, in the same way as stop orders can be made in respect of other trading practices. Last but not least, there must be much wider provision of financial education and free debt and money advice. The White Paper recognises that, which is one of the very good points in it. Much good work has already been undertaken by the industry, as many hon. Members will know. An exhibition in the Attlee suite in Portcullis house shows the work being done on financial education by many financial institutions and advice agencies. I invite hon. Members to visit that exhibition later this afternoon. Good work is being done, but we must ensure both that there is provision throughout the country and that what is provided nationally fits in well with local advice and education. We do not want so much advice to be provided that the public are not sure which is bona fide, which is supported by the independent agencies and by the Government and which is simply commercial marketing masquerading under the cloak of advice. Perhaps there should be a national brand to which independent advice service providers can sign up, so that the public know where to go when they want independent advice and education, as that is so important. These comments are made in the context of my general welcome for the White Paper. Reforms are urgently needed. I am sorry that they will not be taken forward in the current year's programme. However, I understand why; the measures are complex and it is important to get them right. I welcome the fact that the proposed statutory instrument will be taken forward as soon as possible. It is essential that the reforms that require primary legislation are included in next year's legislative programme. I understand that the proposals have received wide support across the sector and across parties. I hope that the welcome that they have received will make it easier for my hon. Friend the Minister and the Secretary of State to achieve the necessary time in the Queen's Speech and the Government's programme in the next legislative year.

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	10th December 2003, Column 101-4 Westminster Hall