Reform plans for doorstep lending

Prices may come down for doorstep borrowers

Plans to increase competition in the market for home credit, otherwise known as doorstep lending, have been put forward by the Competition Commission.

The Commission hopes that by boosting competition, customers will get access to cheaper borrowing.

It wants all lenders to publish fuller information on prices, along with standardised statements for customers.

The Commission warned that if it could not reach agreement with lenders on its plans, it might impose formal controls.

It is consulting further on its proposals, with its final recommendations due in October.

Super complaint

Doorstep lending, unlike the activities of loan sharks, is quite legal.

This package of measures should bring more choice and cheaper loans to the poorest households who are excluded from the mainstream credit market Philip Cullum, National Consumer Council

Companies such as Provident Financial and Cattles lend small amounts of money to their customers, with repayments being collected from their homes each week.

Customers are usually poor people who cannot get normal loans from banks and other High Street lenders, perhaps because they have defaulted on loans in the past.

The Competition Commission first investigated the business after a "super-complaint" in December 2004 from the National Consumer Council.

Philip Cullum, the deputy chief executive of the NCC, said change was long overdue.

"This package of measures should bring more choice and cheaper loans to the poorest households who are excluded from the mainstream credit market," he said.

The Commission's first report in April this year found that those who borrowed from doorstep lenders were being charged as much as £100m a year too much, because there was relatively little competition among the lenders.

It found that most borrowers judged the potential loans purely on the level of weekly repayments, rather than looking at the interest rate or the total cost of the loan.

The problem was made worse by the relative lack of price information on offer from the lenders.