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Financial Services Bill

I shall speak also to Amendments 303, 304 and 305. These amendments insert new clauses that come quite neatly after the amendment tabled by the noble Lord, Lord Whitty, because they are concerned with improving the safety of the credit card system. Before I refer briefly to what they say—I think they are quite clearly set out in the Marshalled List—I should say why I think they are necessary. They are necessary because they will deal with the future only because the present is so unsound and dicey. I have raised the question of credit card debt on a number of occasions, and the Minister has been kind enough to write to me a number of times. His latest letter is dated 1 April, and in it he confirms the high level of outstanding debt on credit cards in the United Kingdom. According to Bank of England figures, there is a debt of some £61.5 billion on which interest is being paid. The interest charged on credit card debt varies greatly—this is relevant to what the noble Lord, Lord Whitty, was saying—between about 12.5 per cent and 35 per cent. The Bank of England’s estimate of the average rate of interest on credit card debt is slightly under 18 per cent. That means that the existing stock of credit card debt is incurring interest at the rate of approximately £900 million a month, which is an enormous sum. We must ask how sound is that debt because most of it is on the banks’ balance sheets. A certain proportion of it—some £9 billion last year—was securitised. I use that word deliberately because the Minister said it was incorrect, but I have checked, and it is a correct use of the term because the banks have handed over that amount of debt to debt collectors and that is effectively—I have checked carefully with a very distinguished source—a form of securitisation. However, that is, in a sense, beside the point. The point is that there is a great deal of outstanding debt in banks in the United Kingdom, certainly some £50 billion. The credit card debt was securitised, or handed over to the debt collecting companies, at a rate of between 10p and 20p in the pound. Therefore, if that is the value of credit card debt, there is a very large, potentially toxic, supply of debt in our banking system, which could be very serious. I had hoped that the Minister would be able to tell me how much that has been written down to, but although he has written me a helpful letter, it does not reveal what it has been written down to, which clearly varies from one bank to another, which is the problem. I am not sure whether the FSA, which he consulted, has a handle on this. The fact is that in any one year at present, only about £200 million a month is being added to borrowings—this is partly because there has been a turndown in the use of credit cards—but that is only about £2.4 billion a year, and therefore an increase of some £8 billion of credit card debts during 2009 indicates that some £6 billion was added mainly in the form of unpaid interest. Again, that indicates the fragility of the level of credit card debt. There is an accident waiting to happen. My new clauses seek to remedy the situation for the future. Some of this is perfectly easy to do, although of course I do not expect the Government to accept the amendments tonight. First, credit card companies need to take a great deal more care and trouble before they give out credit cards. There should be a central register of credit card holders. I am advised by the credit card industry that this in practice already exists, but I believe that it should be put on a statutory basis. That is the purpose of Amendment 302. It would not indicate the amount of debt but it would require someone who was asking for or being offered a credit card to state what credit cards they already had. The credit card company would then be able to check whether they were telling the truth. As we saw with the sub-prime mortgages in America, much of the problem arose from the fact that borrowers made false statements of their creditworthiness, which resulted in the creation of a lot of unsound, toxic credit. The requirement is that the credit card companies should have carried out due diligence on the people to whom they are giving credit cards. My new clauses would also require credit card holders to pay off their balance periodically. What the period should be is a matter for discussion and negotiation, but there should be a periodic requirement for the debt to be paid off. At that stage, if the debt is not paid off as it should be, no further credit would be given. One of the great dangers is that people get into a muddle and are unable to repay not only the principal but probably even the interest. The thing mounts up and has a macroeconomic effect as well as a disastrous effect on the personal lives of these unfortunate people, who often have had credit cards irresponsibly offered to them. There should also be careful scrutiny of young people—I suggest people under 21—who, unless there is a special reason, should not generally be given more than one credit card. The credit card company would be able to check that from a central register. I do not believe in regulations that require a lot of bureaucracy, so my solution is, I think, quite simple. I suggest that a credit card company that incurs debt and has not fulfilled the obligations set out in these new clauses, such as the due diligence that is needed and all the rest of it, would not be able at law to reclaim the credit from the debtor. I hope that the Government and my party, if it forms the next Government, will consider bringing in such a scheme to ensure that the present risky and dangerous situation can be contained for the future. I beg to move.