Inquiry launched into doorstep lenders

The £2bn-a-year home credit industry is to be investigated by the Competition Commission, it emerged yesterday.

The move comes on the advice of the Office of Fair Trading, which has been looking at the practices of so-called doorstep lenders following a "super-complaint" by the National Consumer Council in June.

Specialist lenders Provident Financial, Cattles, S&U and London & Scottish Bank head a number of institutions that use local agents - mostly women in their 40s - to offer loans to consumers in their own homes at annual percentage rates which average 177%, but can be as high as 900%. They target the poorest communities which tend not to have access to others forms of credit.

Although about 500 firms are involved in the market, the big four providers account for nearly 70% of business. The OFT said that having considered the NCC's super-com plaint, and the responses to its consultation, it believed the legal test for a market investigation reference had been met.

Competition among home credit lenders appears restricted, with lenders having limited incentive to compete on price or to attempt to win business by taking over other lenders' loans, it said.

Customers may also have difficulty comparing loans and do not appear to actively do so, the OFT found, while step-up and rollover loans may also tie customers in to existing lenders, making them unlikely to switch providers.

John Vickers, OFT chairman, said: "Our examination of the evidence presented to date gives us reasonable grounds to suspect that there are features of this market which restrict competition."

The NCC welcomed the first official inquiry into the home credit industry, adding the loans could push those most in need into a spiral of debt.