Liza Lambert

People on low incomes who have trouble borrowing money from more official sources are the target for 'doorstep lending'. They can borrow small amounts of cash, even just 100 pounds, for a short time and repay it week by week to an agent who visits them at home to collect the repayments. Of course the interest rates are often spectacularly high.

After the recession in the early nineties millions of people trying to borrow money via traditional routes found it impossible. The doorstep loan market thrived as it served these needy borrowers, many of whom had suffered during the property crash and defaulted on their mortgages, resulting in poor credit ratings.

In 2004 the National Consumer Council complained to the Office of Fair Trading about the doorstep lending industry's high interest rates, and an investigation into the industry was carried out by the Competition Commission.

It discovered that there was insufficient competition in the industry and borrowers were paying dearly for their loans. They were also not encouraged to repay their loans early if they could, so extending the period of debt. However, on the whole borrowers were happy with the way the doorstep lending industry worked.

These days doorstep lenders are obliged to offer their customers a 'fair rebate' if they pay off their debts before the final repayment date agreed.

Another innovation is that the Competition Commission ordered that a price comparison website be set up, and now doorstep lenders are legally bound to make customers aware of it in their 'sales pitch'.

Provident Financial in Bradford, Cattles of Hull and S&U are the three big names in the doorstep lending (aka home collection) business with over 50 per cent of market share. Surprisingly there are around 500 firms in all, including the one-man-bands who tend to charge the worst interest rates.

A loan of 100 pounds could charge 1,500 per cent interest which the lenders claim is not excessive for the cost of providing the loan. They also claim that the APR figure is misleading as most loans run for far less than a year.

Consumer groups do not want to impose an outright ban on doorstep lenders, even though they do not hold them in high esteem, because it would not be good for their borrowers if the industry was driven underground. However, loans are becoming more readily available for those with a poor credit rating through more traditional channels, with the effect that dealing on the doorstep is becoming less popular. In fact Provident Financial has set its sights on the Eastern European market to compensate for the falling market at home.

Summary

Borrowers who still want to step into these potentially shark-infested waters should shop around for the best deal, even if they have used the same agent for years and trust him implicitly, as it could save them money. One example quoted is a saving of up to 40 pounds on a 100 pound loan over six months, and that is definitely worth switching lenders for.