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Last Updated: Monday, 14 June, 2004, 11:26 GMT 12:26 UK
Doorstep lenders under scrutiny
Debt signpost
A consumer group has lodged a "super complaint" with the Office of Fair Trading (OFT) against the UK's 2bn door-to-door lending industry.

The National Consumer Council (NCC) said the move followed an investigation it had carried out into home credit.

The NCC probe found the industry was having an adverse impact on millions of low income and vulnerable people who had nowhere else to turn to for money.

The OFT now has 90 days to decide whether to act on the complaint.

The trading watchdog is expected to launch an investigation into the practise, and could even refer the matter to the Competition Commission.

High cost

There has been growing concern at high rates of interest charged by doorstep lenders which are higher than those at high street banks.

When they come to collect the money they try and offer you more money
Kirsty, a borrower

The NCC's research found that the average rate of interest charged was 177%, with some people being charged up to 900% interest.

The group has also complained about sales practises, such as the sale of 'step up' and 'roll over' loans.

Under step up loans, new customers are lent small amounts as a prelude to offering larger loans once they have proved themselves reliable with repayments.

Under roll over loans, also referred to as top-up loans, a customer is encouraged to borrow more cash before they have fully repaid their current loan.

Lack of information

Many of the people targeted by door-to-door lenders are on low incomes and have poor credit histories and would often be refused credit by mainstream high-street lenders.

The NCC found most customers did not shop around due to the special relationship that developed between them and the lenders.

Borrowers also tended to concentrate on whether they could afford the weekly repayments, rather than the overall cost of their loan, it added.

Meanwhile, the NCC argued that there was a lack of information from lenders that enabled customers to compare their products with others on the market.

Almost 80% of those questioned by the NCC did not know the rate of interest they were paying to a doorstep seller.

'Too easy'

Furthermore, a third did not know what they would be repaying in total and 15% did not know the term of the loan.

The home credit industry offers its customers a genuinely personal service combined with transparency
John Moulding, Provident Financial
The experience of Kirsty, 34, from Ipswich, a mother of three living on state benefits, appears to be commonplace.

Kirsty took out two loans worth a total of 600 to pay for furniture and a family holiday.

She is paying back 31 a week for the next 55 weeks, a total charge for credit of 1,105.

"They send me letters all the time with 200 in big block letters. When they come to collect the money they try and offer you more money. It's just too easy," Kirsty said.

Kirsty added that she didn't give a thought to the interest rate being charged just as long as she could afford the weekly repayments.


However, the NCC did admit that doorstep lenders provide a unique service to low income borrowers - providing unsecured cash loans of as little as 100.

The informal deals, with no penalty if a weekly payment was missed, provided a lifeline to people unable to borrow money elsewhere, it added.

But the NCC noted that people were dissuaded from shopping around once they were locked in with a lender, there was little incentive to pay off loans early as "it saves very little cash", and just a few firms dominate the market.

The NCC called for more appropriate and affordable credit deals for people on low incomes - such as credit unions.

Provident Financial, which is estimated to control nearly half the door-to-door lending marketplace, said the NCC was right to recognise the unique role the industry played.

"The home credit industry offers its customers a genuinely personal service combined with transparency," said John Moulding, director of corporate affairs for Provident Financial.

"Our customers know what they have to pay and can budget accordingly."

But the company said the NCC had misunderstood the increasingly competitive nature of the small sum credit market - which includes home credit - adding that more than 146 firms had entered the market in the last five years.

Provident also argued more people using the system were increasingly shopping around and aware of other options.

Tell us your experiences with doorstep lenders. Did they help you out of a tight spot, or do you feel ripped off?

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The BBC's Brian Milligan
"In some communities they are often seen as providing a financial lifeline"

Ed Mayo, National Consumer Council
"The poor in society pay far more for their credit than the rest of us expect to do"

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