Adam Price

Plaid Cymru | Carmarthen East and Dinefwr

Interest Rate Ten Minute Rule Bill

Interest Rates (Limits on Charges): That leave be given to bring in a Bill to impose limits on the interest rate and associated charges which may be charged by those providing loans and other forms of credit

Thank you, Mr Speaker.

My Bill seeks to tackle the silent sickness of spiralling indebtedness which is afflicting more and more people in our society, and particularly the poorest and the most vulnerable.

There can be no doubt I think that mounting personal debt is causing severe problems for an increasing number of families.

The Bank of England has published figures for March which showed that once repayments were taken into account, outstanding debt on credit cards, loans and overdrafts rose by pounds 1.68bn in a single month.

So it should come as no surprise that increasingly many people are getting themselves into severe difficulties with tragic consequences.

According to the Citizens' Advice Bureaux enquiries from people seeking debt counselling from have risen by 44% over the past six years.

Some 6.4 million people suffer from emotional and physical trauma caused by debt according to latest data from Debt Free Direct.

Almost half a million people have developed a drinking problem and around 250 000 have turned to gambling as a perceived solution to their ongoing financial troubles.

More than 1.1 million people with debt problems have seen relationships with their partners end in separation or divorce.

And according to the Financial Services Authority a little under seven million people are already struggling to meet monthly repayments.

There are many different dimensions of course, to the growing problem of debt - one, of course, is the easy availability of credit, the unsolicited credit card offers and even cheque books daily being pushed through people's letter boxes, including, of course, Monty the Dog, in Manchester, who got offered a gold card wit a credit limit of £10,000; there's also the issue of the lack of transparency in credit contracts, the difficulty in comparing annual percentage rates. The Treasury Select Committee has covered both these issues very comprehensively in its recent report.

However, in understanding the problem of escalating debt in which many people find themselves, there seems to me to be a much more fundamental issue which my Bill seeks to address which is the whole issue of the cost of credit itself. Consumers - particularly those on low incomes - are paying a substantially higher price for credit than is warranted by the costs involved or the associated lending risks. In lay-man's terms Mr Speaker, they are ripping people off, and destroying lives in the process.

The House doesn't have to take my word for this, of course. We have it on the good authority of Mr Matthew Barret, the Chief Executive of Barclays Bank, who in his evidence to the Treasury Select Committee said he wouldn't borrow on credit cards because it was too expensive. Which I think as a candid admission of guilt is up there with Gerald Ratner.

The irony of Mr Barrett's comments is that he can probably afford the repayments. It's the poorer households that are hit the hardest. Those who owe the most relative to their income and pay the most for the privilege".

According to Debt on the Doorstep over three million people on very low incomes have to borrow money at interest rates of between 150 and 200% APR

As the recent OFT study found, some store cards are charging as much as 32% ---and overdrafts are just as bad with banks are charging 30% or more on unauthorised current account debt.

And as revealed in the Guardian last month a new Visa card being launched by a subsidiary of the home credit company Provident Financial, the Vanquis credit card, which has already been trialled in Scotland, has an APR of 64.9%, 16 times Bank of England base rate.

Four months ago, the Department of Trade and Industry got round to announcing a shake-up of Britain's outdated credit laws. There was some good stuff in its consumer credit white paper, such as a crackdown on loan sharks and better protection against unfair credit deals.

The Office of Fair Trading has also asked the Competition Commission to investigate the store cards sector.

The one thing the Government, have so far shied away from, hence the reason for my Bill, is introducing a maximum rate of interest lenders can charge.

Since the introduction of the Consumer Credit Act in 1974, the UK has had no statutory ceiling on interest rates. The Moneylenders Act 1927 created a presumption that interest was excessive if it was over 48% per annum.

The Crowther Committee recommended the retention of the 48% formula and advocated extending it all types of credit agreements. That recommendation was not adhered to.

The only protection afforded to consumers at the moment who get themselves into difficulties over debt is the 1974 Consumer Credit Act which says only that lenders cannot charge "extortionate" interest rates. This is of little assistance to people who cannot afford to go to court to challenge an unfair credit agreement and, in any case, the courts have never come up with a legal definition of "extortionate" in these circumstances. In the case of Equity Home Loans v. Lewis in 1995, a loan with an interest rate of 44.1% was held to be bordering on the extortionate. But only ten cases have been won by consumers under the CCA in thirty years.

There are statutory caps in most European countries, and in North America. In Austria it's set at 20% per annum, 7% in Belgium and Finland, 9% in Greece, 15% in Switzerland. Caps also exists in France, Italy, the Netherlands, Germany and many US States.

One of the arguments advanced against a cap is that it might actually restrict the amount of credit fro low income households, driving them into the arms of unlicensed lenders. Yet the UK has by far the highest exclusion rate in financial services for people in northern Europe and yet has the weakest standards of consumer protection. In countries which have a cap access to credit is higher.

Clearly, for a cap to be successful, it must allow fro a realistic rate to the lender but be low enough to benefit the consumer.

The cap would be expressed as bank base rate + x% where x is a level that covers the risk posed to firms.

Provided issuers can make an adequate rate of return under the cap, they will continue to offer credit because the cap is higher than the marginal cost of offering the credit. In that scenario customers will benefit. They continue to obtain credit, and they will get it at a lower effective price.

But what about fees and extra charges - could companies try to evade the cap through raising fees and charges not covered by the APR. . Well, my bill would not just cap interest rates but also include within its scope fees and charges in a single calculation of the cost of credit. It would also introduce caps on the interest on arrears and on collection charges in the event of default.

Above all, my Bill would ease the burden of debt for those least able to bear it and for that reason I commend it to the House.