It’s hard to believe in this day and age where there are as many lenders as burger bars on our high streets, but the Competition Commission has revealed that there are still doorstep loan sharks preying on people that have no other way of getting credit. There are reports that they are charging up to 1,000% interest per year for loans – the average is 177% – still incredibly high. Thankfully, the Competition Commission is finally making moves to stop these practices.
It’s about time, as it is reported that as many as two million Britons are taking out loans with these companies, usually because they have a very low income and the high street lenders won’t give them a second glance. They are forced to get credit at extortionate interest rates because they have no other way of getting it, and in our opinion, there’s no way that rates of 177% can be justified.
The Commission has a few plans up its sleeve to bring the doorstep loan companies to justice. Firstly, they will force them to clearly state to the customer how much the loan will cost them. The idea is that if the borrower realises that the £100 borrowed will swiftly turn into £200 to pay back, they will think twice. Also if these lenders don’t start dropping their rates considerably, the Commission has threatened to set a maximum legal limit, so if they go above it they will be committing a criminal offence.
Hopefully the home credit lenders will sit up and take notice, and stop preying on those who have no other options.
A company called ‘Provident Financial’ leads the way in the home credit industry, with over 50% of the market share. There are another four companies that also operate on a large-scale. Then there are around 500 companies that are on the fringe. They target single parent families and other people with a low income in estate areas, knowing that they have no hope of getting credit with the mainstream lenders. Repayments are collected on the doorstep, usually on a weekly or fortnightly basis.
Of course, the group that these companies target will naturally bring about a higher than usual level of bad debt and missed repayments. However it doesn’t justify the extortionate rates offered by these companies. It’s clear that making the repayments will leave the borrowers in a far worse financial position than they were in before, in which case these practices are immoral.
When asked, Provident Financial defend their practices, for example they offer a credit card with an interest rate of 70%, with the following statement: “Customers are not being overcharged for their home credit loans, nor is the home credit sector making excessive profits”. We disagree!
Once customers are being given clear information about how much the loans will really cost them, it is expected that they will soon start avoiding these loan deals. The Commission also hopes that new companies will enter the market, offering more ethical deals and ending the reign of Provident Financial.
We are looking forward to the provisional proposals which the Commission is expected to reveal in the summer. The chairman of the Commission is Peter Freeman, and we’re hoping that we like what he has to say!