Lending inquiry calls for price cut

DOORSTOP lenders need to lower their prices and become more competitive, according to the Competition Commission which issued its final report into the home credit market.

The news was good for Bradford-based Provident Financial and Batley-based Cattles, which are two of the leading players, as the rulings could have been much more severe.

Following a two-year investigation into the £2bn-a-year home credit market, the Commission said that home credit lenders would have to make it easier for consumers to compare prices and to repay their loans early, but the report stopped short of a cap on prices which it said would hit vulnerable consumers.

The Commission has also told lenders they need to share data with credit reference agencies and give customers statements if they ask for them.

Home credit lenders sell through agents who call at customers' homes offering unsecured cash loans of as little as £100.

The average loan is for £300 and 70 per cent of the industry's 2.3 million customers borrow less than £500.

In August the Commission announced proposals to open up the market for doorstep lending after an initial report said customers were being overcharged by up to £9 for every £100 borrowed and highlighted concerns that just six lenders controlled 90 per cent of the market.

The statement, which was published after consultation with the industry, said lenders must publish data on a website where customers can compare prices, they must share data on payment records and ensure that customers who repay loans early get a fair rebate.

But the report stopped short of price capping.

"We thought caps might reduce the availability of home credit to the most vulnerable customers, specifically those with no access to alternative sources of credit," said Peter Freeman, chairman of the Commission.

"We also felt that price caps could prove to be extremely difficult to apply and enforce in this industry."

Provident Financial, the largest player in the UK market, noted that the Commission had found high levels of satisfaction among customers and said it would continue to work with the regulator.

Bridgewell analyst Katrina Preston said the impact of the remedies on Provident Financial's full-year profit would be around £10m as consumers settle their debts early.

This represents a reduction of around seven per cent in UK home credit profits.

"Data sharing remains the biggest issue in our view, since Provident has a much more extensive database of borrowers' repayment behaviour than any of its competitors do, enabling it to make more informed lending decisions," she said.

Home credit accounts for just six per cent of Cattles' turnover.

Yesterday the group said the report represented a balanced and objective view of the industry, but it disputed the findings on the high comparative prices of home credit, given the services provided.

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