Competition Commission remedies unlikely to benefit Home Credit borrowers in the short term, 30th November 2006

The announcement that the Competition Commission is going to clamp down on doorstep lenders that are making excessive profits from low-income borrowers has been welcomed by Debt On Our Doorstep – the campaign that first drew attention to the lack of competition in this market in 2003.

We are also delighted that the Commission is proposing great data sharing and clearer price information as part of a set of remedies designed to deliver a better deal for low income borrowers.

However, the Commission’s proposals are likely to take time to impact on the market and the Commission has shied away from imposing an interest rate cap or stating what a competitive rate of interest would be.

Damon Gibbons, Chair of Debt on our Doorstep, commented:

“The measures proposed in this report will probably take a further 18 months to impact on the price of credit. In that time, lenders will have made another £100 million in excess profits. Low income borrowers will wonder why it is that the industry isn’t being forced to pay that amount as a levy to fund affordable credit provision such as credit unions, or why interest rates aren’t being reduced through a cap immediately to ensure they get a fair price.”

The Commission report is expected to feature a set of proposed remedies, including:

greater data sharing to reduce lenders perceived risk;

a requirement for clearer price information on the Total Cost of Credit;

bank-style statements rather than payment books;

a website to make it easier for consumers to compare the cost of doorstep loans

Improving refunds for early repayment – often brought about when borrowers ‘roll over’ loans by taking out new ones.

The Competition Commission remedies follow their previous Provisional Findings which found that the industry was making excessive profits of £100 million per year. Nearly half of customers who repay early are getting a particularly harsh deal with effective APR's of well over 200%.

In the absence of a decision to impose a cap, Debt on our Doorstep has called for the Competition Commission to publish an ‘indicative fair price’ for home credit that its measures will deliver through increased competition, and a timescale by which it expects that this will be done. The Treasury Select Committee Report on Financial Inclusion, published earlier this month, has also called for the impact of the Commission’s recommendations to be monitored, and for possible consideration of a cap should these fail to deliver.

“We now need a clear objective to reduce the amount charged by this industry, with a published target, and a timescale to achieve it. That needs to be monitored jointly by Government and the Commission and reviewed in no more than 18 months time”, said Mr. Gibbons