Cost of Credit Speech

Diolch Mr Deputy Speaker

I rise to speak strongly in favour of the motion.

As a former Policy Officer for Citizens Advice Cymru before my election to this place, I was able to see how the nature of the advice issues dealt with CABs in our communities changed dramatically during the second half of the first decade of this century. Whilst welfare benefit issues had been the staple diet of Bureaux previously, personal debt cases rapidly became the largest single issue dealt with advisers – totalling well over a third of all client issues

Citizens Advice client figures offer a detail insight of the social problems faced by communities across the UK. The latest quarterly figures for Wales are sobering. Total client enquiries over the year totalled nearly 390,000, a year on year increase of 19%. Of this debt related cases totalled over 134 thousand – an incredible 37% of all cases and an increase of 14% on the previous year. Across the UK we would expect essentially the same trajectory. Personal debt problems therefore are at eye watering levels, and Government action must be coordinated and comprehensive.

Mr Deputy Speaker, there is always a lag between the true human cost of any recession and a return to economic growth. Matters will certainly get much worse before they get better, and the current fiscal policy of the UK Government will exacerbate matters.

The economic record of the last UK Government has rightly been criticised for the manner in which the public finances were allowed to run out of control. However, the manner in which consumer debt was allowed to rocket out of control has received little attention. Economic growth in the Labour years was largely reliant upon individuals and families borrowing and spending way beyond their means building up debts they are unable to service. Consequently consumer debt in the UK lies at around £1.4 trillion – a sum equivalent to 100 per cent of the UKs total annual economic output. To put this in context combined personal debt stood at around half a trillion in 1997. It’s an incredible figure which will be a significant economic headwind for the future.

This is a great social crisis facing communities across the UK. The Government cannot stand idly by. We need a comprehensive solution involving regulation of the lending market. Central and devolved Government’s also need to work together to put in place a package of support and educational services to deal with acute debt problems as well ensuring that financial capability is increased amongst the wider community.

We welcome the decision to regulate the excessive interest rates of credit and store cards. Yet there are no plans to intervene in the high interest lending market involving pay day loans, pawnbrokers, door step lenders, mail order cheque cashing agencies and high street alternatives such as Oakem. My predecessor, Adam Price introduced a 10 Minute Rule Bill entitled the Interest Rates, Limit on Charges, Bill which would have introduced a capping structure with the aim of achieving the ambitions of the motion we are debating today.

People who rely on these sort of products are often extremely vulnerable, on low incomes and face interest charges of up to 2,500 per cent. It is exploitation at its worse and the lax regime which exists in the UK is indefensible.

This sort of business models were pioneered in the US. Yet in the land of the free there has been a backlash. Fifteen states have prohibited pay day lending. 35 states have introduced interest caps. In Europe, 14 countries have some sort of capping structure.

I’d like to touch on the issue of Debt Management Plans and the need for the sector to be subject to robust statutory regulation to include, at the very least, a cap on fees and for the debt advice they offer and to be subject to an independent audit funded by themselves. One of the growth industries of the recession were advice sharks exploiting the human misery caused by the downturn. On a fee basis, individuals and families find themselves signing up for expensive debt management schemes only increasing their problems. It is estimated that in 2010 fees from such companies would have amassed in excess of £250 million often on an upfront basis with consumers encouraged to take out further credit to pay for these.

These matters are being considered as part of the Consumer Credit and Insolvency Review, however we need urgent action now to protect consumers and I would urge the Government to act with haste.

To close I’d like to congratulate the Welsh Government on some of its exciting initiatives. The creation of the Welsh financial education unit is a step forward to ensuring that future generations are more financially literate. The all Wales lending unit is at the forefront of the fight against illegal lending. And an all Wales coverage of credit unions to provide alternative affordable lending.

I would however urge even more ambition in my own country. Firstly by rolling out interest free JAK banking like products in our credit unions; and the creation of a National Money Advice Service made up of existing providers and based on the excellent Money Advice and Budgeting Service in the Republic of Ireland.

Diolch yn fawr

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