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Mr. Plaskitt: Yes. Interestingly, when the Treasury Committee requested information from card issuers on how many times cheques are used in that way, they were unwilling to provide any reliable information. Instead, the issuers' material is very heavy on suggesting to customers how they should spend the cheques, but extremely light on information telling customers how much the cheques will cost them.
It is important to acknowledge that the cheques do not extend anyone's credit limit. However, they are used to prod consumers to spend up to their credit limit. Therefore the customer may have to apply for an extension of their credit limit earlier than might otherwise have been the case, or the card supplier may make an unsolicited offer of an extension to the credit limit. It may bring forward the time at which the customer has to resort to taking out another card and, hence, the process of accumulating cards begins. The Committee has discussed that problem. If a customer is using up their credit limit it also becomes more likely that they will incur penalty fees, and the Committee has also discussed the impact of that.
Mr. Robertson: I am following the hon. Gentleman's argument very carefully—it is very persuasive. It is purely my ignorance that causes me to intervene; will he clarify how a credit-card cheque causes the customer to extend their credit limit. I thought that it was more a matter of transferring credit. I am not quite following that point.
Mr. Plaskitt: Perhaps the hon. Gentleman misheard me. The use of a credit-card cheque does not extend anyone's credit limit. However, if a card-holder receives an unsolicited credit card cheque and is encouraged to use it, they will use up some of their credit limit, which may result in the need to extend their limit earlier than otherwise would have been the case. I accept that argument, which credit issuers use in defence.
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I wish to highlight the consequences of responding to encouragement to use up credit card limit by receipt of the cheques. In October 2004, the four principal issuers appeared before the Select Committee on Treasury. I asked them to justify their practice of issuing these unsolicited cheques. Their responses were interesting. Mr. Varley, the chief executive of Barclays, argued that customers use the cheques to effect balance transfers from one credit card account to another, perhaps to take advantage of an introductory offer that would, for a time, reduce the interest payable on the balance. Sir Fred Goodwin, the chief executive of the Royal Bank of Scotland, suggested that the practice allowed customers to pay for goods or services that they might not otherwise have been able to pay for. That echoes a point raised by my hon. Friend the Member for Rhondda (Christ Bryant). Mr. Flynn, the
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chief executive of MBNA, said that it gave people an opportunity to access their credit line. Mr. Geoghegan, the chief executive of HSBC, claimed that the practice was justified because people who do not have bank accounts find it easier to use a credit card cheque.
Interestingly, none of the four justifications addressed the word ''unsolicited'', which was included in my question. They were making an argument for the existence of credit card cheques, and I might be prepared to concede those points. However, they do not make convincing arguments for the unsolicited issuing of cheques. That is the purpose of my new clause.
Paul Farrelly: My hon. Friend will remember that Mr. Varley's predecessor, Mr. Barrett—who is now chairman of Barclays—told the Treasury Committee that Barclaycards were a bad deal and that he would not recommend them to his relatives.
Mr. Plaskitt: I thank my hon. Friend for reminding me of what I refer to as the famous ''Matt Barrett moment''. I am happy to tell my hon. Friend that Barclays chief executives continue the practice of being hideously honest. Mr. Varley had his own ''Matt Barrett moment'' when he appeared before the Treasury Committee in October 2004. I accused him of using credit card cheques to prod his customers into using up their credit card limit. His answer was: ''Marketing is prodding.'' Such honesty is revealing.
Many people think that credit card cheques are a menace and could be used fraudulently. Shredding is the only secure way to dispose of unwanted, unsolicited credit card cheques: the only positive achievement made by these cheques may be their contribution to the explosive growth of shredding machines in the home. Unsolicited issuing amounts to opportunistic marketing of the worst kind. If the issuers were honest about the reasoning behind such unsolicited issuing, they would have to confess that their hope is that their cheques drop on the doormat on the same day as the glossy holiday brochure. The customer puts two and two together and ends up paying six. It is a cynical ploy.
APACS has been lobbying hard to discourage Committee members from supporting my clause. APACS's brief arrived today, and I have read it carefully. I continue to be astonished by the line taken by the association. It argues against my new clause by stating that credit card cheques are
''typically treated as the equivalent of a cash withdrawal.''
That is not the case. Credit card cheques are nowhere near the equivalent of a cash withdrawal. If I were to make a cash withdrawal from my bank and put the money in my wallet, I would not pay interest on it while I carried it around.
However, if I were to lodge money in my account using a credit-card cheque, from the second that that money appears in my account, I would begin to clock
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up interest. By no stretch of the imagination is APACS correct when it states that using those cheques is equivalent to a cash withdrawal; it simply is not.
The Consumers Association has lobbied hard for an end to the unsolicited issuance of those cheques, and the Treasury Committee has twice recommended the end of the practice. Earlier, we discussed my right hon. Friend the Minister's prowess on the football pitch and how good he was at stopping balls from going into the net. I am trying to get the ball into the same net as the Minister because in the White Paper—''Fair, Clear and Competitive''—the Government stated:
''The Household Survey identified certain lending practices which disproportionately affect people who are at risk of over-indebtedness and potentially make a bad situation worse. While it would be wrong to claim they cause over-indebtedness, they could be seen as being irresponsible.''
Those practices include the
''unsolicited issuing of cheques that can be used to draw on credit card accounts.''
The Minister and I are on the same team, aiming for the same net. I hope that he appreciates that my new clause is designed to be entirely helpful. I wish to bring about a modest but important change so that the customer must opt to receive credit card cheques. We can solve that problem and address the dangers of unsolicited issuance by altering arrangements so that if customers wish to avail themselves of a credit card cheque for any reason, they must initiate the process by which the credit card company issues those cheques. I wish to end the current opt-out arrangements that the industry considers adequate. I do not consider those arrangements adequate because they require customers to act to cease the flow of cheques; they must make a telephone call or write a letter. The onus should be on the customer to initiate that relationship, not to stop it.
The amendment aims to alter the current arrangements from customer opt out to customer opt in. If the industry is so confident that customers want these cheques, I do not see why it should resist. If the industry believes that, and if it is true, customers will simply initiate the process and the cheques will flow. Frankly, I do not believe the industry. Most people consider credit card cheques to be irritations that carry the risk of fraud. For all those reasons, I hope that the Minister will support the amendment and help the Committee to save people from that infernal nuisance, and do millions of card-holders a favour.
Alistair Burt (North-East Bedfordshire) (Con): I have considerable sympathy with the points made by the hon. Member for Warwick and Leamington (Mr. Plaskitt) because his amendment sends an important signal. We are concerned that when we talk to constituents about their difficulties many say how easy it was to become involved and how quickly things started to go wrong. As I remarked earlier, it is taken for granted that credit is useful in a free-market society. We seek only to prevent the worst excesses of those who might use the credit system to exploit people.
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There is an overwhelming concern that the debt bubble and the credit bubble are becoming dangerous. Accordingly, people must be reminded that the ultimate ability to pay underpins credit and that they must be careful. That is as important a part of our deliberations as seeking greater regulation to curb those who wish to be exploitative. In that way greater responsibility can be exercised all round.
The issuing of credit cheques is not dissimilar to the messages that people occasionally get on their mobile phones telling them that they have won a certain amount of money. All that they have to do is dial a number to find out about that prize. By the time that they have done that, they find that they have paid out quite a bit to win not very much at all, or, in some cases, absolutely nothing.
It is a process of enticement. It is easy to strike people at a vulnerable time and offer them that bit of extra money. Sometimes the money will be for a necessity; at other times it will be for an aspiration. The hon. Gentleman described how the credit cheque arrives at the same time as the brochure. The extent of advertising tempts people to do themselves a favour, give themselves a little treat or give themselves something that they deserve. That is increasingly hard to resist, especially for people who have difficulty in managing money. That temptation can be the thing that sets them off, making them take the loan.
The hon. Gentleman stated that the onus should be shifted so that if those instruments are to be workable, negotiable and helpful to the credit industry, they should be available, but only on application. Let us make it slightly less easy for people to get trapped.
I thank those who have offered us information on this subject. I have been impressed by what Which! magazine and the Consumers Association have said, and I offer my general support to the hon. Gentleman. I will be interested in how Gerry ''the Cat'' Sutcliffe responds to the ball that has been lobbed up and is now hovering dangerously above him in the six-yard zone.
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