1 December 2006
Home credit loans, where small amounts of money are lent out and collected on the consumers' doorsteps, are to be more tightly regulated and forced to share their data under proposals put forward by the Competition Commission (CC).
A two-year investigation into the doorstep lending industry has revealed that consumers often pay over the odds in their repayments, with the CC estimating that as much as £75 million may have been overspent.
According to the CC's research, two-thirds of those home credit agreement are earning an annual income of less than £13,499, with half of the debtors earning less than £9,000 each year.
This means many of them will be on low incomes and will probably have been rejected by some of the bigger lenders, leaving them in a very vulnerable position.
The CC hopes that its new obligations will encourage competition within the industry, of which 90% is owned by just six firms, leading to a reduction in prices. They also hope to promote more options for low-income households looking for small cash injections.
Concern was expressed at its research which showed that in areas without access to home credit, consumers are driven underground to illegal money lenders. "We do not want to see the market driven underground, making financial inclusion even difficult for an already vulnerable group of consumers," the report said.
"Better and clearer price information will help customers choose between providers," said Peter Freeman, chairman of the CC and the inquiry group. "Customers who settle early - about a third of all borrowers - will also now receive a better deal."
Provident Financial, the UK's biggest home credit lender, vowed to "work constructively" with the Competition Commission to implement the new measures.
© 2008 Adfero Ltd
Content for the uSwitch.com market news service is provided by a third party, Adfero Ltd. Whilst uSwitch.com makes reasonable efforts to check the reliability of this content, uSwitch.com does not guarantee the accuracy thereof or endorse the views or opinions given by Adfero Ltd, unless expressly stated otherwise.