Bottom Line: Springtime for debt collectors

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The Independent Online
Door-to-door consumer credit collection firms, whose claim to notoriety is annual rates of as much as 120 per cent on loans, are on a winning streak now that the economic recovery is under way.

Shares in Britain's leading consumer credit groups, which lend to people who often do not qualify for bank or building society loans, have outperformed the stock market by 40 to 60 per cent over the past year. Low interest rates are enabling their customers to repay their loans and have reduced their financing costs significantly.

Yesterday's results from London Scottish Bank, the Manchester-based consumer credit and debt collection group, illustrate the point. It lifted pre-tax profits by 11 per cent to pounds 2m, increased consumer lending for the first time in two years, and reduced its bad debts for the first time since 1990.

Yet it has not done as well as its competitors, the larger Provident Financial Group and Cattle's Holdings, whose profits have been temporarily boosted by restructuring benefits.

London Scottish may be hit harder by unemployment because it lends for terms of one to three years, whereas Provident and Cattle's specialise in short-term loans of up to a year.

London Scottish is also holding back growth in the short term by investing in its commercial debt collection business.

The stock market generally rates the credit collection firms a bit lower than the clearing banks, perhaps because of a slight unease with interest rates which at London Scottish average 80 per cent. That looks unsustainable and means the shares at 82.5p should be avoided.