|  Mr.
John Battle (Leeds, West): I welcome my hon. Friend the Member for
Tyne Bridge (Mr. Clelland) back to the land of the living from the
Whips Office. He has done his constituents, the House and the country
a service by raising this deeply serious matter, and I hope that
this will not be the last time that it is debated in the House.
Unjustifiable charging locks the poorest into deep and long-term
debt and people are left with no alternatives to get the basics
that they need to survive.
In the heady world of economics, we refer to financial shocks. My hon.
Friend put it well when he spoke of unexpected events. A new baby will
need a pram or a carrycot. If a relationship breaks down, people may need
a new home, for which a bed, sofa, cooker and curtains will be needed.
To people who are poor, £4.99 a week may seem a manageable offer.
However, in practice, a degree in maths is usually needed to work out
the compound annual percentage rate noted in the small print.
I am pleased to see the Minister, who is the hon. Member for Bolton, West,
here today. She was at the launch of the "end doorstep debt"
campaign, which was set up by Church Action on Poverty and others. I know
that she takes these matters seriously, so I am pleased that she will
be responding to the debate today.
We must take steps to tackle this injustice. The loan system is generating
poverty. All our efforts at regeneration are being undermined by the increase
in poverty that is caused by the loan system-loan sharks and the legal
lenders, who lend at incredibly high rates of interest.
In my neighbourhood, at the corner of Armley town street and Branch road,
in Leeds, West, a Lloyds bank was boarded up for some months but has now
been reopened as the Western Union Cash Connector. It sounds like something
from the wild west. It is plastered with luminous red and yellow signs
advertising financial services, pawn broking, cash loans, cheques cashed,
and pay day advances. The signs also say "Goods back later, raise
your cash today." It is not the only such lender in the neighbourhood.
Non-standard loan companies offer loans to people who cannot get credit
from banks and buildings societies and who do not have enough money to
have a bank account or an ordinary credit card. Such companies are proliferating,
especially the cheque-cashing companies or what are known euphemistically
in my constituency as the wage-stretcher businesses. A company called
Clear-a-Cheque has two branches in Wortley and Old Farnley and it offers
to cash wage cheques, pension payouts, social security cheques, giros
or even a lottery ticket if it can be seen to be a winner.
Companies, such as Provident Financial, First National and others, put
leaflets through doors advertising their rates of interest, but their
charges for cashing a third-party cheque include a deduction of between
8 and 15 cent. They then add on a cheque-handling charge of between £2
and £5. Therefore, in practice, cash advanced against a personal
cheque for £100 to be settled 28 days later can run up interest
charges of at least 17 per cent.
The injustice is that a loan of a £100 can mean repayments of-to
quote three companies-£191.76, £202.80 or £220.24 at
unbelievable APRs. I have worked out the APR in those cases at 280.5 per
cent., 329.9 per cent or 440.1 per cent. respectively. How out of line
those rates are with the current bank rate of 4 per cent! As my hon. Friend
the Member for Tyne Bridge spelt out, a credit union commendably offers
a rate of 12.6 per cent. The previous figures I cited illustrate how the
poorest in our neighbourhoods are being deliberately targeted to tie them
to long-term unsustainable debt.
In my neighbourhood, there is a company called Brighthouse, which used
to be called Crazy George's, and it put a catalogue through doors with
the offer:
"Discover Affordable Shopping Made Easy".
12 Feb 2003 : Column 258WH
Its brochure says:
"All our products are available with no deposit and no credit checks."
Unlike other discount stores, the goods are expensive and all the goods
are quoted at the per week hire purchase price which appears, in bold
letters, as £4.99 a week. However, the total cash price is buried
in the small print underneath. The cost of a bed is £4.99 for 156
weeks-that is three years-and that runs at an APR of 29.9 per cent. In
other words, the actual cost of the bed, without a mattress, works out
at £432.38. At MFI, the same bed costs £189 with a mattress.
People are getting over-priced goods at incredibly high rates of repayment.
Mr. Mark Lazarowicz (Edinburgh, North and Leith): I am glad that my hon.
Friend has mentioned Crazy George's as there is also branch of that outfit
in my constituency. Does he agree that action should be taken to ban such
activities or, at least, ensure that the true costs of lending and the
true interest rates are made clear and visible to customers, who should
not be misled in the way that he has highlighted?
Mr. Battle : I completely agree.
We should be open about the fact that this activity is perfectly legal.
It can be licensed. But we need to spell out who is paying the highest
price. Brighthouse is funded by a major bank, so we are all locked into
an unjust loan system for the poorest. Those involved are fostering deep
debt, so I could argue that use of credit cards by the rest of us is at
the expense of the poorest, because the cards are being subsidised by
those paying the highest rates, inflated rates, as in the case of Brighthouse
customers.
We could also make it plainer that there are other alternatives. The cost
of a secondhand washing machine at £421.51, with a payment of £6.50
a week over three years, will work out at £1,028.04 on an APR of
29.9 per cent. In addition, service and insurance charges can be as much
as the price of the machine. Remploy is reconditioning washing machines
that can be bought for a quarter of the cost. Therefore, people need to
be aware that there are alternatives.
I stress that what the companies are doing is not illegal, but what little
the poorest have is being taken off them by incredibly exorbitant interest
rates. The poorest are being forced to pay the most in our society, not
least because they have nowhere else to go. An estimated 7.9 million people
in Britain, one in five, unable to obtain money direct from a high street
bank or a finance house, have no choice but to borrow at very high rates
of interest from those money lenders.
This sub-prime lending market, as it is sometimes described, is not illegal,
but it is highly lucrative. The market analyst, Datamonitor, claims that
it is huge, being worth at least £16 billion a year. Who is that
money coming from?
Answer, the poorest.
Datamonitor published in January a report on sub-prime lending, "UK
Non- Standard and Sub-Prime Lending 2003", which provided five-year
forecasts for these markets, examining competitive and regulatory developments.
It suggested strategies for new business developments, providing non-standard
lending products to the poorest. Chapter 6, on home-collected credit,
contained an assessment of the impact of the debt on the doorstep campaign,
led by Church Action on Poverty and other charities, commenting:
"Government initiatives: despite the hype they currently pose little
threat"
If my hon. Friend the Minister wants her Department to buy the Datamonitor
report, it will find it quite difficult, because the report costs $3,215,
which is beyond the budget of the Library of the House.
If this organisation is suggesting to sub-prime lenders that the Government
will do nothing to interfere with them, but will enable them to expand
their market, we should be interfering more to tackle the problem and
not leave reports advising the bankers buried in documents that no one
can afford. It is big, lucrative business.
On 26 January The Sunday Times spelt out that some of Britain's banks
are behind the sub-prime lenders. They are making millions by charging
interest rates of up to 80 per cent. on loans and credit to the poorest.
The Associates, owned by Citibank Group, is pushing unsecured personal
loans at rates of up to 36 per cent. Next the newspaper referred to First
National, then owned by Abbey National, which recently sold it to GE Capital.
I pause for a moment to reflect on Abbey National and First National.
First National was the consumer credit arm of Abbey National. It was sold
to GE Capital last week for £848 million. GE Capital pointed out
on its website that the £848 million price included £355 million
cash or "surplus equity" as well as £630 million underlying
net tangible assets. Where has that £355 million surplus come from?
Answer: the poorest in our society, locked into paying high interest rates
for years.
Brighthouse is owned by Nomura bank, which is making money out of the
poorest and hiding behind the high street banks and finance companies,
perhaps hoping that we shall not notice.
The huge profits that are going to the banks are being sucked out of the
poorest areas. A study of residents of the Meadowell estate on Tyneside
found that 85 per cent. of households on three streets were paying moneylenders
nearly a third of their weekly income on credit. Collectively, they were
paying an astonishing £370,000 a year. The average income was £200
a week. What are we playing at when that amount of money is being sucked
out of poorer neighbourhoods? Those companies, which charge up to 20 times
more than the base rate through their subsidiaries, are targeting low
earners in a £16 billion lucrative sub-prime money lending market.
It is not simply a matter of leakage, as the New Economics Foundation
calls it, as money is pulled out of poor areas, but a matter of the banks
making a profit from the poorest which they use to run their whole organisations.
In practice, the banks are forcing the poor to subsidise the credit cards
of the better-off by making them pay the highest rates of all. What sense
can we make of social inclusion policies when the poorest are forced to
pay the most? It is a complete inverse of justice. It is not just one
circle according to which poor people go to those companies because they
do not know any better and cannot add up while the rest of us sit by and
say, "If only the poor were not so ignorant and organised their affairs
better, the world would be a better place." We are all locked into
the problem. Our lower cost credit cards are on the backs of the poorest
in society who are locked into deeper debt by extortionate lenders. We
are tied into the same system. The credit cards of the better-off are
provided at the expense of the poorest who are crippled by debt.
What should we do about it? I have three suggestions, and I thank the
140 Members who signed early-day motion 257. The first is to have a cap
on lending rates, as set out in the Consumer Credit Act 1974. Let us put
that cap back so that people are not allowed to lend on APRs of 100 per
cent., 200 per cent., 80 per cent. and so on. The second is to ask the
Minister to ask her colleagues in the Department for Work and Pensions
to revamp the social fund. People who apply to the social fund are told
that they cannot get a grant. Instead, they have to get a loan and, as
they are not wealthy enough to pay it back, they are locked into the system
run by the sub-prime lenders. The social fund should give people an alternative.
My third suggestion is to back up the plea by my hon. Friend the Member
for Tyne Bridge for more support for alternatives, such as credit unions,
in our neighbourhoods to give people a practical choice. They need a collective
bank and lending organisation that lets them get at the basics. The issue
will not go away overnight, but I am convinced that the Government could
do more to introduce preventive measures now to ensure that the poorest
do not pay the highest price. |
John
Battle Member of Parliament for West Leeds.