Clamp Down on Doorstep Loans To Save Borrowers £123 Million
- People taking out doorstep loans should have more protections
- Over 1.6 million use doorstep loans
- Customers pay back more than twice than they borrow
People who taking out doorstep loans should have the same protections as payday loan customers, says Citizens Advice.
Over 1.6 million use these loans in the Uk every year, making in one of the largest high-cost credit markets.
Consumers end up paying back more than twice what they borrow on the average doorstep loan each year, which will take years to pay back.
Citizens Advice believes that new regulations could save people millions of pounds worth of interest collectively every year.
The charity said the Financial Conduct Authority’s clampdown on the payday loans market in recent years has been a big success, as now consumers generally are paying less for loans and are more able to repay on time.
The clampdown capped the overall cost of these loans to consumers, to prevent them from becoming strapped in a debt spiral.
It estimates that extending the same rules to doorstep lending could save up to £123 million in interest payments on up to 540,000 loans each year.
Gillian Guy, chief executive of Citizens Advice, said, “There’s no questioning the evidence- the FCA’’s cap on payday lending has been a success.
“But it’s time now to address the problems consumers are facing in the home credit market.
“Home credit customers need to be protected from getting into problem debt.
“They are susceptible to the high cost of these loans because of eay refinancing- and there is currently no total limit on what they repay.
“The FCA should build on the success of the payday loan cap and extend their definition of high-cost short-term credit to include home credit, making sure that no-one pays back more than double what they borrow.”
Home credit is the most common form of high-cost credit problems that Citizens Advice deals with, with some lender charging interest rates of up to 1,557%.
On average, clients with home credit debts had unsecured debt totalling nearly half of their average income, and half were in council tax arrears or behind on bills.
The FCA said it expects lenders to check loans are affordable for customers.
An FCA spokesperson said, “The FCS took over regulation of consumer credit four years ago.
“In this time we have introduced new rules for the payday sector and credit card market.
“In addition, we secured over £900 million in redress for customers where standards have fallen short.
“Doorstep lending is one of the areas of high-cost credit we have identified as having potential issues.
“As we made clear in January, we have concerns about the impact on consumers who take our repeat loans.
‘We intend to publish our conclusions in May and take action where we find harm.
“In the meantime, we expect all lenders to check loans are affordable for customers rather than just assessing the credit risk to themselves.”
What is the difference between doorstep loans and payday loans?
As the name suggests, a doorstep loan involves cash being directly delivered to your doorstep.
Someone from a doorstep loan company will come round to your home and deliver the cash, and then return on a weekly basis to collect loan repayments.
Doorstep loans claim that they give customers an opportunity to discuss their credit needs and financial circumstances face to face, but many find them intimidating.
A payday loan, on the other hand, is a small, short-term loan which is linked to the borrowers payday, and has more regulations on the amount that can be borrowed.
Do you think doorstep loans should be better regulated? Let us know in the comments