Clamp down on rip-off lenders
6th December 2006
The National Housing Federation and Debt on our Doorstep's campaign for price caps on the excessive charges of doorstep lenders was debated in Parliament last night in an adjournment secured by Dr Alan Whitehead.
Low income customers with no other access to credit are targeted by lenders charging sky-high APR rates ranging from 160% to an astonishing 800%. The Competition Commission recently found that home credit companies are making £75 million a year in excess profits, but it shied away from recommending price caps.
The Federation and Debt on our Doorstep believe there's a strong case for a cap on the "total charge for credit" to be introduced in this country. This would penalise the exorbitant interest rates and back-end charges set by the most exploitative lenders.
Last night Dr Alan Whitehead, MP for Southampton Test, who led the debate, praised the work of housing associations and credit unions in helping those in debt, but warned their work is being undone by doorstep lenders.
Calling for a cap on the total charge for credit set by doorstep lenders, Dr Whitehead said:
"I am not the first person to make this suggestion, either in this Chamber or elsewhere. It is, for instance, a central suggestion of the National Housing Federation, which is undertaking a great amount of work in this field, and of the Debt on our Doorstep campaign."
He added:
"The consequence of doorstep lending is people getting deeper and deeper into debt, often as a result of a very modest foray into credit, and rapidly reaching a point at which repayment seems out of the question.
"The Consumer Credit Act 2006 introduces an unfair credit test that makes it easier for people to take unfair lenders to court, but many people in the position I have described would no sooner take lenders to court than they would fly to Mars."
Responding on behalf of the Government, Trade Minister, Ian McCartney, gave assurances to Dr Whitehead that the remedies recently proposed by the Competition Commission would be carefully monitored.
Rt Hon Ian McCartney said:
"The Commission found that, overall, home credit customers paid £75 million a year more than they should have. That is a matter that should concern all of us, because those customers are the people who can least afford to pay such high prices. The report sets out four measures to increase price transparency and promote competition in the market* I assure him that we will be looking carefully at the impact that they have in practice to ensure that that is the case.
"We might take politics out of competition but we cannot take politics out of poverty."
David Orr, chief executive of the National Housing Federation, said:
"We congratulate Alan Whitehead for spreading awareness of this issue. Housing association tenants will be hit especially hard by doorstep lenders in the run up to Christmas. It's ridiculous that these companies can name their price when lending to the poorest families, and it needs to stop. We believe there's a strong case for a cap on their charges."
Damon Gibbons, chairman of Debt on our Doorstep, said:
"The Competition Commission's recent proposals will take at least 18 months to have any impact. In that time, rip off lenders will continue to exploit the poorest borrowers - creating more misery and hardship. Providing access to extortionate credit is not part of the solution to poverty. It is part of the problem and needs to stop now."
More information
- Alan was interviewed on the Today Programme this morning about the debt on the doorstep campaign. Hear what he said (NB: requires Realplayer; interview starts 25 minutes into the segment)
- For full text of the debate please click here
- The National Housing Federation represents 1400 independent, not-for-profit housing associations in England. Together, our members provide 2 million affordable homes for around 5 million people. www.housing.org.uk
- Debt on our Doorstep is a coalition of over 150 organisations committed to campaigning for change, reducing the burden of unsustainable debt amongst the poorest sectors in society, and bringing an end to financial exclusion in the UK.