Doorstep lenders face price cap

Plans to make borrowing money from home credit companies cheaper were unveiled today by the Competition Commission (CC).

In a report published in April, the commission said the companies, also known as doorstep lenders, were charging customers up to £100m a year too much for loans.

The new measures call for lenders to provide more information on price, enabling customers to compare loan deals and creating more competition in what is estimated to be a £2bn market.

The National Consumer Council (NCC), whose super-complaint initially sparked the commission's inquiry, said the proposals would benefit an estimated 2 million people.

Deputy chief executive Philip Cullum 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."

Home credit companies collect instalments from the customer's home, often weekly or fortnightly. Borrowers are usually poorer people who struggle to get loans from banks or other high street lenders.

Since April, the CC has been discussing possible solutions to the problem with home credit companies, consumer bodies and other relevant agencies.

Their proposals, which include reducing the cost of early loan resettlement and ensuring standardised statements for customers, are now under consultation. Final recommendations are due to be published in October.

The commission said it had not ruled out introducing a price cap if today's recommendations proved unworkable.

The inquiry into the state of the home credit market began in December 2004 after the NCC filed a super-complaint to the Office of Fair Trading.

The 16-month investigation unearthed a lack of competition, with consumers typically being charged £60 in interest for every £100 borrowed.

In some cases lenders, which include firms such as Provident Financial, Cattles, S&U and London Scottish Bank, charged rates as high as 900% APR.