I think that the cost of living crisis could carry on for quite some time. Nobody has a crystal ball and can say when it will end. We think that, even in happier economic times, the bill is not necessarily the right thing for consumers because of the risks that it poses for them. However, in difficult economic times, such a bill, which brings consumers into the equation, will make things even worse.
I would like to set the scene on where we are with the bill and to make our position crystal clear to the committee, which might help as we proceed with the rest of the discussion. I will outline the view of Citizens Advice Scotland, which is supported by many in the debt advice sector.
Essentially, we support the bill for businesses, but not for consumers. We see the need for business to have the bill, but we do not see the need for consumers to have it, because we do not understand what policy gap the bill is trying to fill for consumers. At best, we think that the bill is unnecessary for consumers; at worst, we think that it is harmful to them.
We believe that the bill runs a great risk of creating an unintended consumer harm for several reasons. First, it opens up a new route by which consumers can borrow, but against assets that they need and might lose, which might lead to debt, should they be unable to repay that loan.
Secondly, the bill allows consumers to borrow against assets that they would like to purchase but might not need, and they might not have the ability to repay that loan.
Thirdly, and most importantly for us—this was mentioned in the earlier evidence—the bill will attract high-cost lenders who will target vulnerable consumers who are unable to access mainstream lending, or people will simply be seduced by the effective marketing of such lenders. Members should not underestimate the effectiveness of marketing by those high-cost lenders, which will be much better at marketing than any mainstream, lower-cost lender.
Fourthly—this is absolutely critical and, again, was touched on earlier—those high-cost lenders will create a product that is beyond the reach of FCA regulation. That will lead to years of vulnerable groups getting into financial difficulty, until the FCA catches up with the product. The buy-now, pay-later product is a good example of that. There are no protections in the bill for a scenario in which high-cost lenders target vulnerable people with an unregulated product. We think that that is a critical weakness in the bill.
Finally, the definition of “vulnerable consumer” has widened—it is not narrow. As a result of the cost of living crisis, more people are falling into financial difficulty. Traditionally, people who were in debt got into more debt. Now, people who were just about managing are getting into much more financial difficulty. There is also an additional group of people—those who were comfortably off but who are now starting to get into financial difficulty. Therefore, the idea of vulnerable people should be seen as covering a wider group than has traditionally been the case. That will be a problem when high-cost lenders target that group.
As a consumer organisation, we believe that consumers have no place in the bill and should be removed from it. Consumer need and behaviour are very different from business need and behaviour. Our position has very wide and strong support from the money advice sector, including StepChange, Money Advice Scotland, Christians Against Poverty and the Money Advice Trust, as well as a great number of money advisers that we have spoken to over the past several months. We think that removing consumers from the bill would alleviate all the concerns over unintended consumer detriment, while achieving the bill’s main aim of making the law more modern and less restrictive for businesses.
I am pleased to have been able to say that to you, and I hope that it helps to frame the discussions.