Regulator agrees home credit is too costly |
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Fri, 28 Oct 2005 13:05
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LONDON: The doorstep lending market lacks effective competition and consumers are paying a high price for the convenience of home credit, regulator Competition Commission said yesterday.
The statement was made in a preliminary document by the regulator 10 months after commencing an investigation into the home credit market. The inquiry followed a “super complaint” by the National Consumer Council that doorstep credit consumers had fewer choices to shop around and no bargaining position.
The NCC was concerned that the market could be dominated by Cattles, Provident Financial, London Scottish, S&U and two more who collectively take up 85 percent of the £1.3bn-a-year UK credit market. Provident Financial alone accounts for half of the market.
The home credit market uses local agents to offer loans to people outside mainstream finance. The interest rate charged is high as 900% APR but most of the borrowers have a poor credit history and no access to other forms of credit, leaving them with little choice but to accept loans at such rates. Their only other alternative is loan sharks.
Such people usually do not have a current account and the loans range from £100 to £300. In a typical situation, a person who borrows £100 for six months pays back £160. The repayments are collected from the borrowers’ homes.
The market currently has about 2 million customers.
The NCC was happy by the commission’s statement and the “consumer-focused” inquiry. It had complained to the commission in July 2004 saying the bulk of the market was in the hands of four companies and that it allowed high interest rates to be charged.
Meanwhile Provident Financial has denied that the sector is uncompetitive. It offered “high levels of customer satisfaction and low barriers to entry”, the firm said.
The full report by the commission is expected by mid-2006.
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Home credit providers in the dock 