OFT Takes Action On Doorstep Lending Standards

23rd December 2010

Doorstep lenders provide loans to individuals at their homes, often with few credit checks. Such lenders typically make weekly collections of the repayments from the home. The weekly repayments are often comparatively small which can mask some very high interest rates that are applied.

The extremely high interest rates can push people into debt difficulty and lead to debt solutions such as a trust deed to be required. A quick check on an OFT recommended comparison website reveals that the APR on a £200 short-term loan in Glasgow would be between 294% and 1068%. The company charging 1068% is one of the best known doorstep lending operators in the UK.

Such lending activity is considered to be high-risk by the OFT. During the last twelve months they have identified problems with more than 50% of applications from companies to provide such services whereby they considered that there was a significant risk that customers would not be provided with the right information and credit documentation.

The problems appear mainly to be with smaller providers. Larger providers and members of trade associations did not typically cause the same level of concern.

Such action by the OFT is important as many of the customers of doorstep lenders are considered to be financially vulnerable. Some rely on benefit income alone which includes little scope for the funding of debt repayments. Many others already have significant debts and rely on doorstep lending to live after having paid their other creditors each month.

Trust deed companies are increasingly finding such loans amongst the creditor lists of their clients. It’s commonly understood that doorstep lending is often used in the run-up to signing a trust deed when individuals are desperately trying to maintain their other debt repayments and their usual living expenses.

Inappropriate doorstep lending seems likely to contribute to a growth in the number of trust deeds signed in 2011. Over an eighteen month period more than 200 doorstep lenders have been visiting by the OFT and Trading Standards and more than half of them could not fully demonstrate competence in a number of different ways.

A lack of competence and inadequate paperwork from some doorstep lenders, along with extreme interest rates, should be taken as a warning by anyone in debt considering whether such a loan will help them or just leave them in further debt difficulty.

 

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