Danger of the doorstep deals

13 April 2012

HIGH-interest loans sold on the doorstep are to be investigated amid increasing concerns that vulnerable consumers are being exploited.

There are concerns that commission-hungry agents attempt to strike up a cosy relationship with borrowers to entice them into taking out loans with an APR as high as 900%.

One adult in ten has used home credit. About two-thirds of those who take it out are women, many from low-income families. The Office of Fair Trading will launch an investigation into the market following an official complaint against doorstep lenders being lodged today by the National Consumer Council.

Britain has 600 such credit firms in a market worth £2bn a year. The largest operator is Provident Financial, rivals include London Scottish Bank and Cattles.

The average annual percentage rate for home credit is said to be about 177%.

Typically, families are offered a cash loan by an agent who visits them at home and collects repayments on a weekly basis.

Surveys among home credit users showed that nearly eight in ten did not know what rate of interest they were paying. Three in ten didn't know how much they would have repaid by the end of the loan.

The consumer council is also concerned about the relationship that develops between collectors and their customers.

Often the collector is seen as a family friend. There are fears that this relationship puts pressure on customers to borrow more or a reluctance to turn to another provider offering a better rate.

Provident Financial rejected the NCC's claim that home credit customers are 'captive customers' with little choice. The company said its research revealed 56% of its customers shop around.

It also highlighted elements of the report suggesting 'home credit is a valuable source of credit for people on low incomes' and insisted that the company's growth had been fuelled from international expansion.

'Over the last five years Provident's lending has only kept pace with inflation – growing by 2.75% pa in the midst of a credit boom,' the firm said in a statement.

Shares in Provident, which traded as high as 771p earlier this year, had fallen 9p to 632 1/2p by midday.

Cattles said it was a 'highly responsible lender' and it also would co-operate fully with any OFT investigation. Cattles shares fell 5p to 325p.

Your questions answered

Q: What is doorstep lending?
A: Doorstep lending is offered to people on low incomes who would find it difficult to borrow money from other sources. They are able to borrow small sums, often as little as £100, in cash over short periods of time. They repay the money on a weekly basis to a local agent who calls at their home.

Q: What is a super-complaint?
A: Under the 2002 Enterprise Act a number of consumer bodies are able to submit super-complaints to the OFT if they think an aspect of a market is significantly harming consumers' interests. The NCC's super-complaint is the fourth to be tabled.

Q: Why has the NCC issued a super-complaint about doorstep lending?
A: The NCC is concerned that the home credit market is not operating competitively. Research carried out by the group found it was expensive, with APRs averaging 177%, and it was difficult for people to shop around or switch lenders, due to a lack of information on how much the loan was costing them and the personal relationship which developed between customers and local agents. It also said the market was dominated by a small number of companies and it was difficult for new lenders to enter the market.

Q: Does the NCC want doorstep lending to be banned?
A: No. The NCC said doorstep lending offered a unique service to people who could not borrow money elsewhere and was valued by its customers. It added that a ban would drive it underground, which would not be in consumers' best interests.

Q: What action does the NCC want to see taken?
A: It would like to see steps taken to make the market more competitive, including lenders sharing credit information with each other to make it easier for consumers to change provider. It would also like to see more affordable credit deals made available to people on low incomes, such as through credit unions.

Q: What happens now?
A: The OFT has fast-tracked the complaint and will announce what action it plans to take within 90 days. Options open to it range from deciding no further action is needed to launching a full market study, to referring the issue to the regulator or the Competition Commission.

Create a FREE account to continue reading

eros

Registration is a free and easy way to support our journalism.

Join our community where you can: comment on stories; sign up to newsletters; enter competitions and access content on our app.

Your email address

Must be at least 6 characters, include an upper and lower case character and a number

You must be at least 18 years old to create an account

* Required fields

Already have an account? SIGN IN

By clicking Create Account you confirm that your data has been entered correctly and you have read and agree to our Terms of use , Cookie policy and Privacy policy .

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged in