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Last Updated: Tuesday, 17 June, 2003, 16:08 GMT 17:08 UK
Tackling the debt problem
Cathy has numerous loans with different companies

Very high interest rates on loans is a subject that we've been highlighting for the past few weeks.

Cathy Haines is a victim of debt.

She has no access to mainstream credit - her eldest son ran up a phone bill which resulted in a county court judgement which counts against her in any credit check.

She is dependent on state benefits to get by but has resorted to loan companies to fund spending on other essential household items.

"Without debt I couldn't live," says Cathy.

"When you live on benefits and you need stuff, you can go to the DSS and get some funds with loans, but when you've taken out one loan, you can't take out any more so if something breaks down, a washing machine, a hoover, you need the cash so you go to loan companies as a stop gap."

Excessive charges

Two of Cathy's loans are with Provident Financial - the market leader in the sub-prime or door to door lending arena.

One estimate of the interest rates she is being charged is 100% excluding charges.

Including charges, that figure rises to 200%.

Provident Financial, a FTSE 100 company, deny that their rates are so high - they say their most common loan for 100 has charges of 65.

That works out as an APR of 177%.

Since March of this year when Provident Financial joined the FTSE, its share price has risen by a very healthy 13%, outperforming the index by 5-10%.

Its loan business is clearly thriving.

Tackling the problem

"This is a consumer issue. There are a lot of people out there who can't get credit," says Richard Murphy, a Chartered Accountant who's a specialist in this area.

"What we need to do is to encourage other lenders into this market.

"We need to open this market up, get more competition."

One of the main issues for borrowers is the dominant role that Provident Financial play in the market.

"They clearly lead the pack,"says Richard.

"There are other lenders in this market but Provident are by far and away the biggest player in the market. They're a FTSE 100 company.

"Provident don't provide any choice, you have to have door to door collection and that's very costly."

Ringing the changes

We're still waiting to hear whether the government, as part of an overhaul of the Consumer Credit Act, will put a cap on the interest rate charges in the door to door lending market.

Working Lunch is drawing attention to the issue - so too are other groups.

The Office of Fair Trading has recently proposed a set of measures to prevent extortionate credit in response to the Government's consultation on the subject.

It supports an investigation into what is a fair interest rate for people like Cathy. And wants to see an obligation on lenders to lend responsibly and with proper regard to the borrower's ability to pay.

More clout

And the National Consumer Council says the taxpayer is footing the bill for supervising loan companies and that needs to stop.

The NCC is calling on government to make loan companies pay more for their credit licences, so that Trading Standards get the clout they need to clamp-down on rogue lenders.

"Normally banks and other businesses tend to pay for the cost of their own regulation by the license fee or the like and that covers what the government does in order to make sure they keep in line with the law of the land.

"In the case of loan companies, the costs of checking up on them, which is carried out by trading standards officers, is met entirely by the tax payer so the very cheap cost of a license for a loan company is actually being subsidised by the tax payer." Ed Mayo, Chief Executive of the National Consumer Council.

According to the NCC this is unjust to the borrower and unfair to the taxpayer.

The NCC wants to see lenders charged a realistic fee that goes directly to Trading Standards to boost their resources and enable them to carry out effective policing of all credit business.

Later this week, the new minister in charge of the Government's review on consumer credit will be named.

He or she will certainly have quite a lot on their plate on their first day at work.

Loan companies face probe
17 Jun 03  |  Business
Caught in the debt trap
03 Jun 03  |  Education
Debt company folds
27 May 03  |  Working Lunch

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