Debt and Lending
Tonight's members' business debate, on the subject of debt and lending, is introduced by Donald Gorrie.
Motion debated,
That the Parliament is concerned by the number of households badly affected by debt and by the contribution to debt problems made by banks, retailers issuing credit cards, building societies and money lenders vigorously encouraging people to borrow more money, when they are already heavily in debt or obviously have no means of repaying the loan, and as regulation in this sphere is outwith the powers of the Parliament, believes that the Scottish Executive should address this issue by means of holding discussions with these lending bodies to seek voluntary agreements that they will not advertise or press credit on people that are manifestly not creditworthy and should ask the banks instead to lend money to credit unions for them to lend to people of limited means on the basis of such unions' better assessment of the likelihood of each loan.
The question of controlling debt, or of helping people who are in debt, is basically a reserved matter, but it is so central to the social justice strategy of the Executive and the Parliament that I think it important for us to debate it.
My interest in the subject was re-aroused by my regular visits to citizens advice bureaux, both in Central Scotland and elsewhere. Staff at those CABx brought up the issues of multiple debt and of banks and other lending organisations pushing further debt on people who are already in debt, which seems immoral to me. Those organisations should be discouraged from doing that.
About 10 per cent of people in the United Kingdom have serious debt problems. The total unsecured loan debt is £122 billion. The figures from the Scottish CABx show that there were about 60,000 new debt inquiries in 2001-02 and 160,000 on-going debt inquiries. Of those 60,000 inquiries, about 37,000 were about consumer debt, which is the biggest category of work for the CABx. There has been a clear increase in the total size of debts, which is totally disproportionate to inflation. Many people are now in debt to the extent of £70,000, not including any mortgage problems that they might have.
At the end of the motion, I suggest more encouragement of credit unions. The credit unions are a useful community resource, although, like anything else, they need monitoring. I have heard accounts from one CAB of strong-arm tactics being used by a particular credit union to ensure that people paid their dues. On the other hand, another CAB pointed out that no-one had ever come to it with a debt problem arising from a credit union. Obviously, therefore, there is mixed experience, but in essence credit unions offer a good service, which we should encourage and which the banks should fund more.
Doorstep loans are a big issue. They affect the poorest people, who have to pay the highest interest. Interest rates of 164 per cent seem to be normal, and figures of up to 500 per cent have been quoted to me. Interest at 164 per cent means that someone who borrows £100 for one year ends up paying back £264, which is hard on a person who does not have the money to start with. Some of the doorstep loan companies undoubtedly exploit the poor and refuse reasonable offers of rescheduling the debts, as proposed by citizens advice bureaux or other bodies.
Another pernicious feature of doorstep borrowing is what are known as rolling loans, by which, if someone has a loan and is in debt, they are offered another loan to pay off the first one, often at a higher rate of interest. The second loan offers very little free money: most of the money goes to pay off the balance of the previous debt. People get further into trouble, and might take out yet another loan.
Everyone agrees that the way in which some doorstep loan companies operate is wrong. Banks, in their replies to me on this subject, claim that they act in a frightfully prudent fashion, but I do not think that they do. According to citizens advice bureaux, there are cases of the same person having three or four debts totalling more than £20,000 at the same bank. It is wrong for banks to allow people to have several debts with them.
The banks seem to target existing debtors. They send out what are called cheques with new credit cards, but it is not clear that the cheques are additional loans on which debtors must pay interest. A person who was already £34,000 in debt was sent an Access card and incurred further debts of £4,000. People are responsible for their own actions, but to put so much temptation in the way of people who have a weakness with money is immoral and should not be allowed. The banks are often at fault. They sometimes fail to reschedule debts as citizens advice bureaux or other advisers have suggested, so that debtors may pay off all their debts gradually. Having refused to reschedule repayment of a loan of £8,000, one bank refinanced the loan in a way that cost the debtor an additional £7,600.
I will provide members with a few snapshots of the problem. In Motherwell and Wishaw, there are 6,000 debt cases. In Falkirk, the money involved in debt cases has increased from £900,000 to £2.25 million within five years. In East Kilbride, debt is broken up into personal loans at £950,000; credit card debt at £850,000; bank loans at £780,000; and store credit at £200,000. Those are the four main categories of debt. In Denny, rent arrears account for 45 per cent of debt cases. In Cumbernauld, there are 400 new multiple debt cases each year. Airdrie has well over 2,000 debt inquiries in a year. There are considerable problems across the board.
What should we do about those problems? We should discuss a combined strategy with Westminster, as this is principally an issue for the UK Parliament. Someone who was present at one conference has assured me that Patricia Hewitt told the conference that debt was not a problem. Some ministers at Westminster need to be educated about this issue.
We could have credit reference agencies produce registers of existing debtors whom lenders would be told to avoid. That would raise issues of confidentiality, but it must be possible to use credit reference agencies—which cover a huge number of debts—constructively.
Edinburgh central citizens advice bureau provides a court adviser in the Edinburgh court. Everyone agrees that that scheme, which is funded by the Executive and various other bodies, is a great success. We should extend the scheme so that better advice is available to people in court. Debt is a huge problem and we should do more to deal with it.
There is no significance in the fact that I am speaking from the front bench. [Interruption.] I will have no heckling from Christine Grahame.
I congratulate Donald Gorrie on securing this important debate. The Parliament has discussed debt and the allied issues of warrant sales, poindings and attachments a number of times. However, I do not think that we have ever discussed the core issue of how people get into debt and what we can do as a Parliament, either acting unilaterally or in partnership with Westminster, to try to tackle the roots of the problem.
I begin by making a plea for the minister to look at my proposal for a bank arrestment bill, which has been in the system for two years. The bill has the support of the legal committee of the Scottish clearing banks, which was actively involved in its drawing up. It would deal with an issue that was not included in the Executive legislation, but which the debt working party report highlighted as an issue that needs to be dealt with.
Many people these days who in days gone by did not have a bank account, particularly pensioners, now operate through a bank account. When their bank account is arrested, they are left with nothing to live on until the problem is resolved. If someone has their wages arrested, they are allowed to keep about £70 a week to see them by while the problem of repaying the debt is resolved and a schedule for repayment is agreed. Pressure is now put on pensioners to have their pension paid into a bank account, rather than by cash at the post office. Many pensioners, sometimes accidentally, find themselves overdrawn or in debt because of their inexperience of using, and inability to manage, a bank account.
The purpose of the bank arrestment bill is to give to those people whose bank accounts are arrested the same treatment that is given to those whose wages are arrested. They would be left with enough to get by and enough for the basics of life until the counselling and agreed debt resolution procedures were put in place. I hope that now that we have a new minister, the Executive will take a more sympathetic approach to the matter. I have no doubt that we do not have time to pass my proposed bill before the election, but I will introduce a bill in the new session, provided that I get a guarantee that the Executive will not try to block it. That would deal with one of the consequences of debt.
We have to examine the reasons for people getting into debt. In essence, we are talking about three broad categories of debt. By far the largest debt in this country is the debt attached to mortgages, but that is not generally problematic because the debt is associated with an asset and the liability is very often more than offset by the asset. We had problems in the past with negative equity and many people got into difficulty. That is a specific problem with managing the housing market, which is not the core of the subject tonight.
The second category of debt through which people get into difficulty, and which involves by far the biggest amount of money, is consumer debt. In the old days, that happened primarily through hire purchase and people taking on far too much debt. These days, it is through the pressure to take on credit cards and all the rest of it. I remember, during a recent debate, Lyndsay McIntosh giving us an excellent display of all the mailings that she had received from companies trying to sell her credit cards—not her other mailings—within a fortnight. No doubt we will get another show tonight. That was indicative of the sheer pressure that is put on people daily to get into debt. We must do something about that, because that pressure and temptation leads a lot of people into debt.
The third main problem is local authority debt. When we discussed warrant sales and poindings, we found that more than 80 per cent of all warrant sales and poindings in every year that we looked at over the past 20 years were in relation to debt to local authorities. That debt was either in respect of the poll tax or, now that that has worked its way out of the system, in respect of council tax and/or rent arrears. I hope that the new legislation will assist in managing that.
In the cross-party group that I have been involved in, and in all the work that I did with others on the Abolition of Poindings and Warrant Sales Bill, the fundamental lesson was the power of early intervention. There is no point in waiting until people get so deeply into debt that they cannot do anything about it. Developing an early warning system and finding ways to intervene early will be key to the success of part 1 of the Debt Arrangement and Attachment (Scotland) Bill, which we passed last month.
I congratulate Donald Gorrie. Debt is not a party-political issue; it is a social problem that needs to be tackled. I look forward to a sympathetic response from the minister.
The fact that I speak from the front bench is significant—I am the only Conservative member who is still here.
I congratulate Donald Gorrie on securing the debate. I suspect that, following last month's debate on the Debt Arrangement and Attachment (Scotland) Bill, my views on irresponsible lending are well known; Alex Neil referred to them. It is surprising that none of the firms that I criticised has come back to me to justify its business practices. In fact, others have joined the fray by taking up the habit of offering me access to cash. Perhaps their revenge will be to see me buried beneath an avalanche of credit offers.
I will now discuss Donald Gorrie's wordy but worthy motion. Like other members, I have no difficulty in sharing his concern about the number of households that are affected by debt problems. I glanced through my credit-card case and, to my horror, discovered that I carry eight credit or store cards with me at all times. I always have fags, lighter and credit cards—you can do anything with those.
You could set fire to your credit cards.
Perhaps I should. I have other credit cards at home, but they only get an outing at sale time. They will get a bit of a thrashing come the turn of the year. For the time being, I am fortunate enough to be able to afford to settle my accounts in full as the bills arrive, although my circumstances will change.
Donald Gorrie highlighted the important issue of people who are already heavily in debt. I am concerned by stories of people who are offered even more credit by their creditors when they face up to their indebtedness, even though they cannot service their existing debts. That is not a difficulty only for people on low incomes—it can apply to people across the socioeconomic spectrum.
Donald Gorrie pointed to the amount of vigorous advertising that assails us, which we all hear on commercial radio and television or see in newspapers and magazines; it is everywhere. It is little wonder that people get into difficulties.
Citizens Advice Scotland's briefing is helpful and informative. There are 1,300 different credit cards and 33 different credit card issuers in the United Kingdom. One has to wonder why we need so many. It comes as no surprise that February figures for credit card debt show a sharp rise. People will put off the prospect of paying for Christmas for as long as possible. As a consequence, the vast majority of cases that CABx deal with are cases of debt. I will use Citizens Advice Scotland's figures to emphasise the scale of the problem. In 2001-02, 69 front-line CABx dealt with a total of more than 400,000 new inquiries from people all over Scotland.
The Abolition of Poindings and Warrant Sales (Scotland) Act 2001 and the Debt Arrangement and Attachment (Scotland) Bill have made most members aware of the pressures on parents and families, which apply particularly at this time of year when expenditure is high.
I will not indulge in bank bashing. I suspect that banks are already aware of their position in the popularity stakes; like politicians, double-glazing or kitchen salesmen and car dealers—almost the direct descendants of horse thieves—they are way down the popularity list.
That said, much of the debt legislation is Westminster territory and we wait to see what Westminster does. I congratulate Donald Gorrie and I look forward to the minister's response.
I, too, congratulate Donald Gorrie. Alex Neil and I have launched a cross-party group that will attempt to deal with reserved issues such as consumer credit. It will address where we pick up the tab for the impact of debt on society.
I also refer to my humble bah humbug motion, which is a serious motion concerned with the commercial pressures that are put on parents at this time of the year. It is no coincidence that the problems for people who have debt on credit cards land on their doormats in February, which is also a time when a high number of people seek a divorce. The commercial pressures for people to get everything that is on television, no matter what their income, are severe. That is something that must be addressed.
Would Christine Grahame put that down to spending too much time with her other half?
No. I do not have an other half. I have three cats.
The Bank of England today raised a serious issue about people borrowing against the equity in their house, if they have any. That is a serious issue. The property market is highly inflated, especially in Edinburgh, and all that needs to happen is for the market to deflate, or for a couple to split, for the whole house of cards to come tumbling down, credit cards being the cards in question.
Let me give an example that I gave when we launched the cross-party group. I had a client who was on the point of divorce. The solicitor said, "Right, we must see what the assets are and what the liabilities are, so that we can make an equitable division between yourself and your spouse." I asked her, "Have you any debts?" No, she did not have any debts. I said, "Wait a minute. Do you have a mortgage?" Yes, she had a mortgage, so we put that on the debit side. "What else do you have?" I asked. "I've no debts," she replied. I said, "Do you have credit cards?" Yes, she had loads of credit cards but, she said, "I'm paying them all as I go."
In her head, she did not have any debts, because she was managing to pay them every month. However, we added up the amount due at any time on the credit cards, and so liable for demand, and it came to a startling £30,000. Those were very ordinary people, but, by juggling along, they had just managed to keep going while both of them were working. Sometimes all it takes is a divorce, somebody losing their job or sickness, and that is it. It all falls down on them.
My client astonished me even further when she returned to the office and said to me, "Well, it's all right, Ms Grahame. It's all sorted out. I've taken a consolidated loan." In her mind, because somebody had offered to purchase the debts and put them into one big debt, and because she was paying less per month, she thought that everything was all right. She was actually paying even more.
On television there is now an increase in advertisements with suave, civilised voices giving examples of people who are paying less and saying, "If you've got debts, bring them to us. We'll take the load off your back and we will manage it." That is basically another horrific trap for the poor.
I would like to mention a few other points that the CAB at Peebles raised with me, some of which are very important. They relate to front-line stuff, which we all know about. I used to work as a solicitor giving advice in a CAB. The Peebles record for multiple card debt was held by one client—an ordinary person—who held seven cards. No doubt there were balances on every single one, and some were from the same bank. The CAB sees young people who have absolutely no idea about how to budget or who, like my client, have no idea what debt actually means.
The CABx want budgeting to be introduced in the education process. Way back in the dark days—almost before gas—when I was at school, we did exercises in household budgeting. We would work out problems such as, "If you have £20 per week coming in, what would you need for food and for rent?" We had to do that as a serious exercise. I do not know whether today's youngsters have those lessons or understand the problems that they can get themselves into.
The CAB figures also show that, in the Border region, there are debts totalling £2.5 million for 258 live cases. The Peebles CAB alone sees one or two new cases every week. There will be lots of others who do not turn up at the CAB but who turn up at the solicitor's door saying, "What can I do? The sheriff officers are at the door." At that stage, CAB staff and solicitors are trying to firefight for them.
There are huge issues surrounding debt. It is very important that—until such time as we are independent—the two Parliaments work together. We cannot always deal with the debris and disaster in people's lives, while having no control over the piranhas who provide dear credit to the very people who cannot afford to service it.
I am grateful to Donald Gorrie because this is the first members' business debate to which I have been invited to reply, and it is on a subject that is close to my heart. As the elected member for Clydebank and Milngavie, I am conscious of the difference between my constituents at one end of the constituency and those at the other.
Within 100yd of my constituency office in the centre of Clydebank there are no less than five cheque-cashing shops, each of which extracts a relatively high rate of interest from people who use its services. Many people in Clydebank use catalogue and hire purchase arrangements to buy capital goods, which are far more costly than the mechanisms that are available to better-off constituents in Clydebank and certainly to constituents in Milngavie and Bearsden.
We are aware that people in poorer areas have to face up to additional charges, even from very large companies. On Monday, someone who came to my surgery told me that people without bank accounts are charged an extra £2 per month by NTL for their television, simply because of the method by which they pay for it.
Whether that is unscrupulous is perhaps not easy to say. It is clear that there is inequality in our society, because people do not have equal access to an appropriate choice of mechanisms of repayment. There are unscrupulous lenders out there, as a number of contributors to the debate have pointed out.
We rely on regulation to deal with completely unacceptable practices, but there is no doubt that the Executive has a role in the promotion of financial inclusion. We are aware that debt can be a crippling problem and that people need better ways of managing it.
Last year, citizens advice bureaux in Scotland dealt with 160,000 inquiries, representing approximately £70 million of debt. Thirteen per cent of households do not have a bank account and are thus excluded from financial products to which other people have access. We must try to increase people's access to proper financial services as well as providing mechanisms through which people can get the money advice and support that they need. Both Alex Neil and Lyndsay McIntosh made that point in their contributions.
The Executive has a role in building people's capacity to tackle their financial problems, through money advice for example. We are providing £3 million in funding for 100 new money advisers, in part to help to implement the provisions of the Debt Arrangement and Attachment (Scotland) Bill, which has just been passed.
It is also important to encourage local government to provide money advice to citizens in their area. I commend the work that is being done by West Dunbartonshire Council's money advice service. In recent years, it has done an excellent job in targeting poorer people, to ensure that they get full access to the benefits to which they are entitled, and in helping people to deal with debt.
I will talk a wee bit about credit unions. With my constituency hat on, I am proud that my constituency contains Scotland's largest community credit union, Dalmuir Credit Union Ltd. It is a superb example of a collective, co-operative community organisation that assists people to manage their financial circumstances.
Credit unions are not just organisations for poor people. Credit unions can assist you and me in managing our financial affairs. It is important that more people from all different walks of life are members of credit unions, because that is a practical way of increasing the total stock of funds available and the amount of money that can be lent. Credit unions are also a direct mechanism for the financial inclusion that I would like to see developed.
Perhaps the minister will encourage more members to join the credit union that we are allowed to join, which started off being for local council workers but has now been extended. The minister's point is quite correct: we should practice what we preach and invest in credit unions.
We should encourage that. I encourage every member to consider becoming a member of a credit union. As I said, one of the things about credit unions is that they are subject to reasonably tight financial controls under legislation. There are ways in which credit unions can engage with the banks and other financial agencies. I want to see people finding ways for banks and other larger financial agencies to assist the work of credit unions, perhaps by making additional resources available to credit unions, to assist at key points and ensure their liquidity, or by considering guarantee schemes, whereby the banks begin to underpin the lending processes of credit unions so that, in effect, credit unions can become lenders on behalf of banks. I have been involved personally in trying to get that off the ground in Clydebank.
There are examples of banks getting involved with credit unions. I know of one partnership between Cranhill Credit Union Ltd and Lloyds TSB, where the bank has given the credit union £10,000 for a debt redemption scheme. There are other individual cases, such as the case of a £2,000 debt being paid off for a single mother, who is now back at work and paying back her debt at £40 a week. Larger employee-based credit unions can also assist smaller community credit unions. There is a virtuous circle of genuine community-based organisations assisting in the process of dealing with financial exclusion by actively promoting the engagement of different sections of the community in the process of money management—in other words, providing not necessarily a professional service, but a community service. I would like that to be promoted.
I support what the minister said about credit unions, but I would like him to address the fact that, in some ways, prevention is better than cure. Does he think that there is merit in his colleague the Minister for Education and Young People's department educating children at primary school about managing their money?
That is well worth considering. There has been a drive in recent years towards teaching people life skills. Teaching people how to manage money—and giving them warnings about the implications of taking on significant debt and debt at extortionate interest rates—is worth while.
I will conclude by highlighting two points that were raised. To pick up Alex Neil's point, the Executive is examining the complex area of arrestment. Paying benefits directly into bank accounts will throw up new issues from next year. We will need to consider those, but no decisions have yet been made on how to do so. However, that is an area of interest.
Donald Gorrie's suggestion of using credit reference agencies to list bad debtors is not one that we have considered. Credit reference agencies would need to be paid to carry out a service. There is a danger that less reputable lenders might take advantage of the process, but I am willing to think more about Donald Gorrie's idea.
This has been a valuable debate. The issue of debt will not go away, and it is one with which the Executive, through its social justice approach, must engage actively. Clearly, under the present constitutional arrangements, we must do so in parallel with and in discussion with Westminster. If we can find better ways to assist people to manage money and to help them out of debt, and if, as Christine Grahame pointed out, we can address the issue of prevention, we will be doing everybody in our society—in particular those in poorer communities, such as the one that I represent—a great service.
Meeting closed at 17:49.