David Prosser: Lenders' let-off must be short-lived

Doorstep lenders are easy targets for scandal-hungry campaigners. Not only do they charge outlandish rates of interest for credit, but they also focus on low-income borrowers who can least afford to pay such expensive prices. It's a classic case of rich companies preying on the poor.

This week's interim report from the Competition Commission - which is currently investigating the home credit market - may therefore have surprised people. The watchdog said that while there was a lack of competition between lenders, borrowers themselves seem mostly happy with the deal they get.

The reaction of the National Consumer Council will have raised even more eyebrows. It says the Commission is quite right - that the report is "spot on".

Two words explain this response - needs must. Low-income households often need small loans to cope with short-term problems - a broken washing machine, say, or the cost of new school uniform. The big banks and credit-card providers are not interested in lending such people money. In the absence of home credit providers - which are at least honest, regulated companies - borrowers would have to turn to illegal loan-sharks, where no protection or standards apply. That's why consumer groups don't want to see a major crackdown on doorstep lenders.

If these companies pull out of the market, or take a tougher line on who they are prepared to lend to, a vulnerable group of borrowers will have no choice but to take their needed loans from unscrupulous - and often criminal - operators.

But this is not an argument for doing nothing. It can't be right that people in a desperate financial situation have to pay interest rates that often run into three figures, simply to get through a cash-crisis.

More state intervention is the only option. In the summer, the Government announced welcome extra cash for the Social Fund, which provides cheap loans to the neediest borrowers. This scheme must now be expanded further.

More local initiatives are also needed, so that borrowers do not have to plough through all the red tape that has dogged nationally run initiatives.

Finally, it's time to get really tough on financial exclusion. Millions of people in this country still do not have access to the basic financial services that the rest of us take for granted. This exacerbates their problems - paying bills by direct debit usually gets you a discount, for example, but it's not an option for those without bank accounts.

Private sector operators can't be forced to lend money to everyone at low rates of interest. These are businesses that must protect their shareholders from bad credit risks. However, the financial services industry must recognise that it has a function in society other than to maximise profits. That means offering basic products to a wider number of customers.

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