The Competition Commission has published a list of "remedies" for the doorstep loan market
Doorstep loans set to become clearer
Thursday, 30 Nov 2006 12:53
The doorstep loan market will be opened up to competition and become clearer for customers and cheaper under new rules set out today.
The Competition Commission has published a list of "remedies" to what it describes as an industry that is making £75 million a year more than it should from the poorest members of society.
Doorstep loans (also known as home credit) involve small loans with repayments collected from the customer's house. They provide easy access to credit for many people who would not have this elsewhere.
But a provisional Competition Commission report found doorstep loans charge, on average, nine per cent more than they should be because of a lack of competition in the market.
To try and improve the situation the commission today unveiled a list of remedies designed improve the situation for consumers.
"We are very aware of the difficulties people on lower incomes can face in this area," said Competition Commission chairman Peter Freeman.
"We have directed actions towards increasing customers’ options rather than reducing their access to a necessary source of credit.
"Despite its high cost, home credit is much valued by many customers and we would not be helping these people if we made home credit less available."
More than two million people use these loans every year, and those that do are more likely to be young mothers, living in social housing, and on low incomes.
The proposed remedies:
Require lenders to share data on customers’ payment records (to overcome the information disadvantages faced by lenders attempting to compete for customers’ business);
Require lenders to publish prices on a website where customers can compare the prices of loans on offer;
Ensure that the statements lenders will be required to provide under the new Consumer Credit Act contain information relevant to home credit customers; and
Ensure that those customers who repay loans early (around a third of all customers) get a fair rebate.
"These measures are designed to open up the market to greater competition so that customers will get more choice and lower prices," Mr Freeman explained.
"Data sharing will enable other lenders to make better lending decisions and compete more effectively. Customers with good repayment records with home credit companies will also benefit from this when applying for other forms of credit.
"Better and clearer price information will help customers choose between providers; customers who settle early, about a third of all borrowers, will also now receive a better deal."
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