I associate myself with the powerful speech by my hon. Friend the Member for Feltham and Heston (Seema Malhotra). I understand where the hon. Member for Thirsk and Malton (Kevin Hollinrake) was coming from, but I really believe that we could make some progress on this issue this evening. That would be of great benefit to many people affected by the issue, so I will certainly support the relevant amendments.
We know how important this legislation is. I pay tribute to the Minister, who has been listening to concerns throughout the Bill’s passage. I wish to comment on two particular issues in respect of which I would like him to tell us further information; I hope he might be able to. We know that this legislation matters desperately because between a fifth and a quarter of adults have experienced a reduction in income in the past year. That is mainly because of furloughing but is also true among the self-employed. It is crucial to get financial services right as we come out of the pandemic to help to make sure that people are not stuck in interminable circles of debt.
We knew that one in five people were already struggling to pay for housing, food and energy and were unable to meet their credit commitments. That proportion has now risen to two thirds among people who were already suffering from financial problems before the lockdown. There has never been a more important time to get right how we regulate our financial services. StepChange points out that 26% of those affected by coronavirus
have borrowed money to make ends meet, usually using their credit cards or an overdraft facility. At least £3.3 billion of new debt has been taken on since the start of the crisis. The question for us is whether the Bill is going to do enough to make sure that that credit is offered at a fair and affordable price for people.
Given that 6 million Britons have already fallen behind on a household bill, this is a question for the state as well as for our economy. Mothers, lone parents, those from black and ethnic minority backgrounds, the young and the disabled are most at risk of debt. In April, a quarter of all mothers from minority community backgrounds reported that they were struggling to feed their children, and 32% of young women reported finding it hard to pay for essentials. That is not just a financial problem; it is a mental health issue. There is a mental health crisis coming to our country, with one in every 12 people who are over-indebted experiencing mental health problems.
I know that the Minister shares the concerns I am outlining. That is why I have been a terrier when it comes to the “buy now, pay later” industry—because of my concern about the way in which it engages in lending to our communities. The Minister knows the speed at which the industry has grown during the pandemic. The FCA found that 11% of consumers in this country—roughly 5 million people—have used a BNPL product since the start of the covid outbreak, and many of them say that they use “buy now, pay later” credit because they cannot manage their financial distress, which is directly related to the crisis, without it.
BNPL companies have exploded. Within a year, Clearpay now has 1 million customers in the UK, lending to them on average eight times a year. Klarna, perhaps the most well known, reports that its worldwide revenue for 2020 grew by 40%, to $1 billion. The founder of Laybuy expressed concern and surprise that fraud in the UK market was huge in comparison to that in New Zealand and Australia. That just shows the problems of the industry coming and exploding at such a rate in our communities without regulation.
Compare the Market tells us that “buy now, pay later” schemes are being used 35% more than they were in the pandemic, with most customers saying that it is because they cannot afford to make purchases outright. We are a nation with a massive debt bubble underneath our economy and we need to ensure that, when these companies operate, they do not exacerbate it.
I welcome the Woolard review, which was clear that the “buy now, pay later” industry needs to be regulated because people were in financial distress and difficulty because of these products, that the products were not good value for money, and that many of the things their lobbyists had told MPs were simply not true. Indeed, the review also found that consumers may not be applying
“the same level of scrutiny to their decision-making as they would for other credit”
companies,
“including consideration of the potential consequences of failing to repay”,
because they were not getting the right information. The Minister will know—we tried to tell him at the start of the Financial Services Bill—of the case that we needed to take to the Advertising Standards Authority about the way in which Klarna was advertising its products.
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I welcome an amendment that does what we were trying to do through the Bill— to get these companies regulated—but the Minister will understand that I have some questions about this regulation. Looking at that context and the explosion of these companies, it is absolutely critical that we get this right. I was very troubled to hear the Minister in the other place say that the Government do not believe that all elements of the Consumer Credit Act 1974 should apply to the “buy now, pay later” industry, as it would be what he called “disproportionate”.
Will this Minister tell us what sets this industry apart, and the problems that we have seen already, from other forms of credit so that it does not need regulation in the same way that other credit providers do? What would be disproportionate about applying the 1974 Act? In particular, what factors has he assessed with regard to consumer detriment and how has he determined that that regulation is not in the consumer’s best interest? Can he tell us bluntly and simply now, if the Bill goes through and it becomes an Act, what form of redress consumers will have? We know that there are thousands of people who have complained about these companies. Will they be able to go to the ombudsman’s service, and what standards will the ombudsman be able to hold these companies to account for now?
The Minister stated that with “buy now, pay later”, it is important to note that those products are interest-free, and thus they are inherently lower risk than most other forms of borrowing—that was said in the other place—but the Woolard review itself pointed out that the service might be free to the consumer as long as the repayments are made on time. It is the repayments that are the issue. The Woolard review stated:
“The exemption under the CCA was never intended for this kind of product but only for short-term invoice deferral.”
So why are the Government not taking on board what the Woolard review said and bringing that into the Bill now to make sure that we properly protect consumers from these companies?
Will the Minister tell us whether more regulation of the “buy now, pay later” industry is coming outside the Financial Services Bill? We know that the industry is continuing to lobby hard. We have heard the words and we have seen the briefings, but, Minister, we need to know who is speaking for consumers in this—the millions of people in difficulty, in debt and indebted to these sorts of companies. Who is meeting the Government from those organisations as these proposals are crafted? Will he urge retailers to exercise caution until the proper regulations are in place? Will he hold the major companies —the H&Ms, the Marks & Spencers—to account for promoting these companies, so that we can keep consumers safe while this is resolved? This matters in the same way that access to cash matters, because as so many consumers have found, being limited in options means being open to exploitation, and I fear that this is not the end of the “buy now, pay later” industry issue, but just the start.
Finally, I just want to say something about the net zero amendment, which, for many of my constituents, is a vital issue. Achieving this country’s new target to cut its greenhouse gas emissions requires action across all parts of the economy. It is not just about retrofitting buildings or driving less, or using solar power, but about
the crucial things that our state can do and that our regulatory bodies can do and that we can do through our finance. That is a lesson that we can learn from many other countries around the world.
Again, I have to be honest: I share the shadow Minister’s frustration that, throughout the Bill, we were proposing these measures on net zero and meeting resistance from Government. As with the “buy now, pay later” amendments, had we agreed on these much earlier in the Bill, we could be much further forward not just in making sure that we are getting on track with our existing carbon commitments in the run up to COP26, but in gaining the benefits that come from being a net zero economy. We need that kind of fresh thinking. There is agreement across the House, whether that is on “buy now, pay later” industries or on net zero, but I wish that the Minister had agreed with us much earlier to do this, because we could then, in the run-up to COP26, be leaders in this field, rather than playing catch-up.
As we shift our country’s resources away from importing fossil fuels and towards sustainable infrastructure and reskilling the—[Inaudible.]—the need for national income will grow. We know that it is a benefit to our economy as well as our society and, indeed, our children’s future. I hope therefore the Minister will use this as a springboard to go much further so this is not just about individual regulators but is instead about becoming that net zero economy and putting climate change and sustainability at the heart of our future covid recovery. Tonight’s Lords amendment is a good step towards that, but it is just the start of a clear pattern we need to build within our financial services to make sure we are not just doing our bit in the UK, but that we are world leaders.
I will support the Lords amendments, and I hope the Minister will take it in the good spirit in which it is meant when I say that I will continue to lobby him on these issues, because I know that he does want to get this right. Currently, however, there are still too many unknowns about what will happen next, and without that action—without that clear commitment, on tackling not just consumer detriment but climate change—we will always be playing catch-up. Our constituents need and deserve nothing less than for us to take this forward and be world leaders.