Doorstep lending operators exploit customers, says regulator |
|
|
Published
:
Fri, 28 Apr 2006 09:10
|
LONDON: The Competition Commission has lambasted the doorstep lending operators, saying they are overcharging their customers by as much as 100 million pounds a year.
The regulator said in its provisional findings of a 16-month investigation into the activities of this sector that there is absolute lack of competition, which has helped the lenders to reek in higher profit margins. It said it is considering opening up the industry to competition and making it mandatory for lenders to offer comparable products and rebates to customers who do not default in their repayments.
The commission, however, did not recommend a cap on the interest rates -- which are alleged to be in some cases more than 100 per cent. It may do so if it finds that its initial suggestions are not heeded.
Chairman of the commission Peter Freeman said home credit business is patronised by several customers, who seem to be insensitive to the prices because of the greater value and conveniences this product offers and because there is no comparison possible between different service providers. He said, "There have been almost no reductions in price over the last five years ... and customers are paying too much."
The report cited instances of vulnerable users of these products being overcharged by 9 pounds for every 100 pounds they borrowed.
The home credit market in Britain offers short-term, small loans, even as small as 100 pounds, to people with very low incomes. The repayments are collected by door-to-door agents of the operators in weekly or fortnightly installments. However, the interest rates are very high with customers on an average are found to be paying the equivalent of 177 per cent in annual interest. In some cases, the customers end up paying even 900 per cent of what they originally borrowed.
The commission suggested that doorstep lenders should share data with banks and give clear price information. If these suggestions are not accepted and implemented, the commission would consider caps on interest rates.
While there are some 500 providers of this type of credit, six large players dominate the market. Among them, Provident Financial, accounts for more than half the market.
Provident Financial reacted to the commission's findings saying it is surprised by the conclusions and that it did not believe it is overcharging.
John Harnett, the firm's finance director, said the company is willing to comply with remedies such as data-sharing and providing statements for customers, but described the suggested measures as "using a sledgehammer to crack a nut".
The commission intends to have talks with home credit companies on the provisional findings before it comes out with its final report later this summer.
Figures for home credit lendings for 2004 indicated that the sector advanced about 1.5 billion pounds to some 2.3 million customers and collected around 1.9 billion pounds in repayments.
The commission launched the inquiry after the National Consumer Council lodged a super-complaint with the Office of Fair Trading in 2004.
|
|
|
|
|
|
Print this Story
Regulator agrees home credit is too costly 