CC evaluates home credit measures

28 Feb 2013

The CC completed its investigation into home credit in November 2006 (PDF, 73 Kb) . Home credit, also commonly known as doorstep lending, refers to the supply of small loans, repayments for which are then collected in instalments (often weekly or fortnightly) from the customer’s home. The CC concluded in 2006 that a lack of competition in the home credit market from other credit products, new entrants, or among the home credit providers themselves, meant that customers were paying higher prices for their loans than would be expected in a competitive market.
 
Subsequently the CC brought in a range of measures to increase competition, including a requirement for home credit companies to share data on their existing customers’ payment records to open up the market to greater competition from other lenders and make it easier for those customers with good repayment records to access other forms of credit. Other measures included requiring lenders to publish prices on a website—LendersCompared.org—where customers can compare the prices of loans on offer, and to change the early settlement rebate so that customers who settle loans early receive a better deal.

The CC’s evaluation published today here (PDF, 351 Kb)  concludes that:

• the changes to early settlement rebates have benefited customers by around £35 million, approximately half of the detriment the CC identified in 2006;
• customers who have used the LendersCompared website have benefited from reduced search costs and being more aware of price differences between lenders; and
• the data-sharing remedy has reduced the incumbency advantages of lenders who previously had sole access to their customers’ payment records.

However, the evaluation also notes that other aspects of the market have remained quite similar. In 2005, home credit companies lent about £1.3 billion to 2.3 million customers, whereas in 2010 the number of customers (2.4 million) was only slightly different. The cost of home credit loans has changed little (albeit that these might have been expected to rise in the current economic climate) and the market shares of the various providers have changed little with Provident still by far the largest. The profit that Provident makes per customer has fallen notably since 2005, however.

The evaluation notes that the data-sharing remedy aimed to increase competition by enabling more mainstream lenders to take on home credit customers through knowing their creditworthiness. However, this has been hampered by the unfavourable economic circumstances, which have reduced lending across the board. The evaluation concludes by stressing that continuing promotion of the comparison website will be important and that an improvement in economic conditions should increase the impact of the data-sharing remedy.

Chairman of the CC and the Remedies Standing Group, Roger Witcomb said:

‘The measures we have introduced have undoubtedly had a positive effect, most tangibly in relation to the rebates customers get when they settle loans early, and the website also allows customers to compare prices and providers in a way that was not possible before.

‘However, other attempts to improve competition and open up the market to other providers have not had as much impact as might have been expected, partly because the recession has had the opposite effect. Whilst demand has obviously remained, mainstream lenders’ appetite and ability to lend to their existing customer base—let alone to new customers—has evidently contracted. So whilst our remedy has created that opportunity, the economic situation has discouraged companies from taking advantage.

‘The home credit market has changed relatively little over a long period of time, and whilst other forms of high-cost credit have expanded greatly since our report, there appears to be limited overlap with home credit customers. That this demand for home credit remains underlines the importance of measures which improve things for customers without reducing the availability of this form of credit.’

Notes for editors

1. The CC is an independent public body, which carries out investigations into mergers, markets and the regulated industries.

2. The CC is committed to a rolling programme of research into past remedies with the aim of ensuring that learning points are captured and fed into the development of remedies policy and practice. This is the second time the CC has examined the impact of its remedies put in place as a result of a market investigation under the Enterprise Act 2002: in 2011, the CC examined the remedies on the store cards market investigation. The CC has also published an evaluation of past merger remedies. These reports can be found on the CC website at: www.competition-commission.org.uk/governance/specialist-groups/remedies-standing-group.

3. Further information on the CC’s 2006 investigation can be found on the CC website at: www.competition-commission.org.uk/our-work/directory-of-all-inquiries/home-credit.

4. Enquiries should be directed to Rory Taylor or Siobhan Allen or by ringing 020 7271 0242.