Fri 22nd Sep, 2006
New Proposal Aims to Protect UK’s Poorest
The Competition Commission’s proposal promises to introduce more competition into the doorstep lending market. These lenders target the poor, high-credit-risk consumer, offering them temporary financial relief by lending them small, one year loan. This segment of the population is not financially educated enough to realize the exorbitant interest rates charged by doorstep lending companies will result in a greater hardship in the future.
Philip Cullum, deputy chief executive of the National Consumer Council (NCC), said: ‘Overall this package of measures should bring more choice and cheaper loans to the poorest households who are excluded from the mainstream credit market. More competition in the home credit market is long overdue.
‘NCC especially welcomes the proposals to oblige home credit lenders to share information on their customers’ payment records – making it easier to switch provider - and for fairer early settlement rebates for customers.’
This is a welcome relief to a market that has not been restructured for 30 years before the 2004 Credit Bill. The doorstep lenders prey on the UK’s two million poorest. Many of these people borrow money to pay utility bills, or pay off other debts. The loan not only increases their debt load, but it increase the interest paid on those loans.
If the proposal is passed as it stands, then many consumers who are locked into loans will be able to shop around for a lower interest rate, or even a early settlement plan with a lower pay-out fee.
This is a good move in the light of the doorstep company’s new venture into the internet and television market. These venues remove the stigma of the ‘door-to-door’ salesman, and makes it easier for the doorstep lending companies to pose as reputable financial institutions.