NCC submits home credit supercomplaint
14th June 2004

The National Consumer Council has today submitted a 'super-complaint' concerning the home credit industry to the Office of Fair Trading. The OFT now have 90 days in which to respond to the complaint and to assess whether or not to proceed with a further, detailed, market investigation beyond that time. If conducted, and if the OFT finds evidence of market failure causing consumer detriment, then a wide ranging set of recommendations to address this is possible.

The NCC case for the supercomplaint is based on evidence of a lack of price competition in the home credit industry. Surveys from Leicester and Stafford back up the NCC's claim here - with many borrowers reporting that they did not have access to alternative forms of credit, and that they selected borrowers on the basis of who was able and willing to make the loan offer. Often, the first company to get a foot in the door, is the one that they will have to stay with in future.

Lenders' 'capture' borrowers by offering roll over loans, and by refusing to share information about borrowers with other companies. This ensures that existing customers who approached a different lender would initially only be offered only a low level of credit until they had established their credit record. It also means that good payers do not progress to cheaper forms of credit, and are effectively over-charged because the pricing of home credit loans includes an assumed amount of default. It is therefore the only credit loan where customers pay an unknown charge up front for potential default, and do not get a rebate if they maintain payments in accordance with the original agreement. Strangely, lenders in the industry and some commentators consider home credit lenders to be 'transparent'.

All of these practices prevent price competition, but means that the lenders have clear incentives to get to the borrower first, and to sell increasingly large loans over time.

Debt on our Doorstep will shortly be making its own representations to the Office of Fair Trading in support of the NCC's super-complaint, and seeking to ensure that a full market investigation is now conducted.