Home credit providers in the dock |
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Published
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Wed, 20 Apr 2005 01:00
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The home credit industry has now come under the scrutiny of the Competition Commission following a complaint from watchdog organisation - the National Consumer Council (NCC). The home credit industry was accused of charging excessively high interest rates for the small loans they provided.
In all there are 500 companies in the home credit industry, but only four of these accounted for a huge 65% chunk of the market. These four major providers will have to convince the Commission that the rates they charge are quire justified and that there is no need for more stringent regulation.
| The Commission will be examining evidence which suggests that the home credit providers exploit their customer’s poor financial literacy to palm off credit products with exorbitant interest rates. Questionable practices believed to be adopted by some providers include distorting, restricting and preventing competition. The Commission will conduct a thorough investigation into these charges.
Doorstep credit providers had recently come under the media spotlight and were being carefully watched by MPs and pressure groups. According to the NCC the average annual percentage rate (APR) was 177%; with certain types of credit interest was even as high as 900%.
A spokesman for one credit provider said “The reason for the scrutiny is not the supposedly “high” interest rates. The problem lies elsewhere. Britain is faced with mounting debt so the policy makers are agitated and picking on home credit providers. Sometime back it was the store card market that was placed under regulatory scrutiny.”
Most providers we contacted said the credit industry’s contribution to overindebtedness was not considerable. Home credit accounted for just 1.3% of unsecured loans in contrast to other forms of credit and had not grown beyond the level achieved two years ago.
‘Home credit’ is those small loans (averaging between £ 200 and £300) that you repay in weekly or fortnightly installments which are collected by commissioned agents from your doorstep. Such loans are preferred by people who cannot or do not wish to borrow via personal loans or credit cards.
Most providers argue that their interest rates are justified to cover the costs of advancing small amounts and of door to door collections. The four major providers will have to convince the Commission that their rates are justified and that they follow a business model that is considered ideal by the industry. If they fail to do so, they face the prospects of cramping rules and regulations.
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