Doorstep lenders face probe

BRITAIN'S official consumer watchdog today moved a step closer to launching a full investigation into the country's doorstep lending companies.

A decision whether to pass the complaint to the Competition Commission for a detailed investigation would be taken by the end of the year, said the OFT.

The National Consumer Council (NCC) hailed the announcement as ?a highly significant breakthrough for at least two million people on low incomes‘.

In its complaint to the OFT, the council said home credit – small cash loans collected in the home – can push those most in need into a spiral of debt. 'Most home credit customers are on low incomes with little or no employment and need small cash loans just to make ends meet,' said the NCC.

Today the OFT said it had identified features of the market for home credit 'which appear to restrict competition, and which may warrant further investigation by the Competition Commission'.

These are that:
Many customers are in a poor bargaining position and their financial need may mean that they are not price-sensitive
Customers may have difficulty comparing loans and do not appear actively to do so
Step-up and 'roll-over' loans tend to tie customers in to existing lenders
Agents' relationships with customers contribute to making them unlikely to switch lenders
Aspects of the structure of the market may deter entry, particularly on a significant scale.

Deirdre Hutton, head of the National Consumer Council said: 'The new super-complaint process has opened the door to the first official examination of the workings of the £2bn-a-year home credit industry. We hope the market will now be put to the test and the industry called to account by an authority with clout.

?Whatever the OFT decides, it is clear from our own research that people on low incomes are starved of affordable credit choices that meet their specific needs.

?They need much better choices of affordable credit that fit their tight cash budgets. This is a much wider issue than judging whether the home credit market is competitive – and an issue that government and the whole credit industry must now address.

?Earlier this week Tony Blair identified doing more for the minority of poor people in our affluent society as one of the seven key policy challenges at the centre of his strategy for winning a third term. Tackling the dearth of affordable and appropriate credit sources for the poor must be high on that agenda.‘