Pressure grows for action on doorstep lending
27th June 2007
Alan Whitehead, MP for Southampton Test, has again teamed up with the National Housing Federation to attack the failure by a government regulator to clamp down on ‘rip-off’ doorstep lenders, which is costing low income families up to £1m per week.
The Federation has sent a letter to the Competition Commission demanding that it immediately implement a promised action plan to tackle the lenders, who deliberately target people who are too poor to be able to secure affordable credit, charging them sky-high interest rates.
Federation Chief Executive David Orr highlighted the fact that ‘thousands of housing association tenants are being exploited in the pursuit of excess profits’ – and demanded that the Commission publish a new timetable for action.
Last November, following a two year investigation, the Competition Commission produced an action plan to increase competition and reduce prices in the home credit market in order to tackle doorstep lenders, who target low income estates.
According to its own timetable, the Commission should have published a draft order in ‘early May’ instructing companies to share price information so that customers can shop around for a better deal.
But this is well behind schedule. The draft order has still not been published, and when it finally does appear there will be up to 45 days’ consultation before the Commission’s recommendations can take effect.
All this time, low income families with no other access to credit are continuing to pay sky-high fees to doorstep lenders. The lenders, who are also known as home credit companies, offer loans at an average interest rate of 177%, but can charge up to 900%.
The Federation has been campaigning on doorstep lending alongside Dr Whitehead and the fair finance pressure group Debt on our Doorstep. This included Dr Whitehead securing a Parliamentary debate on the issue last December in which he called for the Competition Commission to go further in their response and for government to concentrate on three key areas; access to basic bank accounts for everyone, a total cap on credit charged, and better data sharing so that a credit rating history can be built up.
Using figures from the Competition Commission’s home credit market investigation, Federation, which campaigns for better housing and neighbourhoods, estimates that:
- Since 1 May, borrowers have paid £7 million in excess charges (above what they would have paid in a competitive market reflecting the costs of provision); or around £1 million per week
- Customers pay approximately £7 per £100 borrowed in excess of what they would pay in a competitive market place.
- Since the Competition Commission began its inquiry on the supply of home credit in the UK on 20 December 2004, home credit companies will have made loans to around 5.8 million customers who will have paid £116.8m in excess charges (above what they would have paid in a competitive market reflecting the costs of provision)
- In the same period Home Credit companies will have raked in profits in excess of the cost of capital of around £187.5 million
- In 2006 the largest home credit company, Provident Financial, made £127.5 million in pre-tax profits from home credit lending. It estimates that the impact of the Competition Commission recommendations on their profits will be between £5-10 million (source: Provident Financial annual report).
Dr Alan Whitehead said:
"It is a continuing scandal that home credit companies are allowed to rip-off low-income families by keeping them tied to one lender.
The Competition Commission needs to act now to compel doorstep lenders to share their credit data and give customers the freedom to shop around for a better deal. Every day the Commission delays means more money taken away from poor families to fund excess profits."
David Orr, chief executive of the National Housing Federation, said:
“It is absolutely disgraceful that home credit companies can name their price when lending to the most desperate people in society. The Competition Commission was supposed to change all this.
“It’s seven months since the Commission announced its action plan and almost two months since it should have published the draft order – and yet we are still waiting. This is unacceptable.
“Every week the Commission drags its heels, low income families are paying out £1m in excess charges. This intensifies their financial problems and increases the social problems that they face.
“The Competition Commission must act now.”
More information
- Background to the doorstep lending campaign is available at www.alan-whitehead.org.uk/housing