Tuesday, 24 May 2011

Debt, credit and me

Following an article in the Messenger and on BBC Kent, it is really interesting that I’ve subsequently been praised for my “honesty” and and “bravery” for talking about the debts I accumulated shortly after I arrived in London after leaving University. I don’t really think of it as honest or brave, and nor do I see it as an embarrassing tale. I just see it as a part of my background that now as an MP I can draw lessons from and help other people avoid.

My story is one based on youthful stupidity. As a teenager, I had worked and saved. When I went to Uni, everything I took with me in my little car I had bought myself. I was rather proud of myself – I didn’t have rich parents or relatives to buy me what I wanted or needed so I was financially prudent throughout my degree course and left with only what today would be considered a small amount of student debt. But then I arrived in London, started earning a small salary but lived, dated and worked with people who earned a lot more and I simply wanted to keep up and live the high life. I would buy things on store cards and maxed out credit cards. I got overdrafts and loans. And then got more. Added to my small student debt, I was soon nearly £15,000 in debt. What happened next seemed cruel at the time but turned out to be a life saver. The bank manager called me in, advised me on how much danger I was in financially, cut up all the plastic in my purse and put me on a repayment plan. It was awful at first but got easier as time went by and then after some considerable time, I finally made my last repayment and felt completely liberated!!

But my whole personal experience made me very aware of how easily you can live beyond your means. However I think of myself as quite lucky that the credit shops, websites or telephone lines that exist today were not freely available back then. I’m in no doubt that given on occasions the vulnerable position I had put myself in, I would have found them immensely attractive. Payday loans are obtainable in minutes and can often help a person out of a hole but the problem is that unlike if you miss a payment with your bank, who do often clock a problem and follow it up with the account holder, some credit lenders end up charging massive interest rates and roll over loans making the situation worse. Then to compound the problem, debt management companies advertise to help consolidate the money you owe into one lump sum but charge large up front fees, which in turn help market the product wider, and again mean that the consumer ultimately pays a significant amount more than was owed. Thus the vicious circle of debt begins and there are some horrendous stories of people paying back tens of thousands more than they had originally been lent in the first place!

Along with colleagues I met with Consumer Minister Ed Davey about this issue last week. While it is clear that not every lender or debt management company is unscrupulous, there are lots that do see an opportunity for profit in a growing industry. The Government is consulting on some of these matters at the moment, the OFT is looking at strengthening parts of its guidance and colleagues are working cross-party on consumer credit, debt management and as importantly, financial education. It is important that these three issues are all considered together and I am pleased to be involved in the various meetings and discussion groups with good providers and advisory services. However it is equally important that consumers are made aware of the free advice, credit unions or free debt management programmes that are available. The Citizens Advice Bureau provides an excellent debt advisory service and the Government continued with funding the financial inclusion fund for the next year in recognition of this service. In Medway the CAB is seeing more people coming through their doors with an increased about of debt, and while on one hand it is obviously very worrying that more than a million pounds of debt per week is now visible in Medway it is on the other hand reassuring that people are turning to the CAB for advice. My colleague Mark Reckless and I have long championed their cause locally and we shall continue to do so.

The truth is that anyone can get into debt. Lower income groups are more vulnerable but it is not an exclusive problem to one part of society. However it is noticeable how many money lending shops have sprung up in the high streets of the more deprived areas and what income groups the debt industry is marketed at. People need to be able to take responsibility for their own behaviours but they often need to be guided in the right direction – I got it from the bank manager and to this day I remain grateful. It sounds cliched, but it is very easy to get into debt but it is a lot harder to get out of it. The political, backbench and ministerial discussions will continue for some time I’m sure but in the meantime I will continue to direct constituents who come to me with their debt problems towards the many free services that continue to compete with those who finance their often aggressive marketing through upfront customer fees.