Doorstep Lenders Receiving Unwanted Interest
Below is a MRR and PLR article in category Finance -> subcategory Other.
Unwanted Attention on Doorstep Lenders
Summary
Doorstep lenders are under scrutiny from industry regulators, sparked by a super-complaint from the National Consumer Council (NCC). This resulted in an Office of Fair Trading (OFT) investigation, and subsequently, concerns from the Competition Commission (CC).
Article
Doorstep loans provide small, short-term loans to individuals with low incomes or limited access to bank accounts. Repayments are collected weekly or fortnightly at the customer's doorstep. Despite their convenience, these loans have attracted critical attention.
Peter Freeman, Chairman of the CC, stated, "Customers value home credit for its convenience, but they are overpaying due to insufficient competitive pressure in the market."
The CC revealed that weak competition in the home credit sector has resulted in customer overcharges amounting to £500 million over five years. Freeman also noted, "Price competition among existing lenders is limited because customers prioritize convenience over cost, and comparing prices between companies is challenging."
While more transparent options exist, such as My PayDay Loan and financial comparison sites like Moneynet, six major doorstep lenders dominate 90% of the market. Provident Financial alone holds 60% of the £2 billion annual industry.
Unlike traditional unsecured loans that benefit from robust regulation and accessible comparison information, doorstep lenders lack competition and transparency. The CC suggests that this allows lenders to overcharge vulnerable customers.
To address this issue, the CC recommended several changes, including clearer pricing information, regular statements, and more data sharing with credit reference agencies. They also warned of potential future price caps if lenders fail to comply.
These recommendations have sparked strong pushback from doorstep lenders, who dispute the calculations and conclusions about excessive profits. A Provident representative argued, "Customers are not overcharged, and the sector is not excessively profitable." They also criticized the profit calculations for overlooking the costs of maintaining a network of agents.
Freeman believes that the CC's recommendations could encourage mainstream banks to consider lending to lower-income customers.
Disclaimer
This article is for general information purposes only and should not be considered advice under the Financial Services Act 1986. It is strongly recommended to seek professional and legal advice before engaging in any binding contracts.
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