The Stationery Office Home credit market investigation

This report examines the supply of home credit in the UK. The Commission found, that most home credit loans are for relatively small sums paid in cash, usually less than £500, with the vast majority of home credit lending done by companies which engage agents to visit customers' homes to collect repayments, or assess credit worthiness' and make loans. The Commission has only investigated legitimate licensed businesses, and the state of competition in home credit, which should be distinguished from illegal lenders, often referred to as loan sharks. The Commission did find that credit lenders lent about £1.3 billion to around 2.3 million customers in 2005, and collected around £1.8 billion in repayments. The Commission found that six large lenders accounted for around 90% of the market in home credit, with one company, Provident Financial plc (Provident) accounted for around 60% of the market. The profile of home credit customers, were, generally female, under 35 years old, to have young families, and fall into economic groups D and E, and to live in a low-income household and in rented council or housing association homes.. The Commission also found that the prices of home credit loans, however measured, were high in comparison with the prices of other credit products. That prices were higher in the UK, than the Republic of Ireland, and when customers repaid loans earlier, the price was particularly high. The Commission also found the provision of a home collection service involved high costs by comparison with other forms of credit, and that profits have been persistently and substantially in excess of the cost of capital for firms that represented a substantial part of the market. The Commission reached the view that the home credit service was valued by customers, but that the prices they paid were higher than they would need to be to reflect the costs of providing the service, and higher than they would be in a competitive market, and that price competition among home credit lenders was weak. This weakness of price competition (due to both customer insensitivity to prices and the failure of lenders to compete) were features that prevented, restricted and distorted competition. Furthermore, the lack of data sharing between lenders, the customers' requirement for an agent they can trust and the regulatory prohibition on door-to-door canvassing of loans, are features that give rise to an adverse effect on competition (AEC). The Competition Commission has set out a number of recommendations, including: the requirement of lenders to share data on the payment records of their customers through credit reference agencies; to ensure lenders publish prices of their home credit loans; to try and ensure that statements of loan accounts provide information relevant to home credit customers and to ensure that the rebates paid when loans are settled early are fair to home credit borrowers and lenders.