The Competition Commission launched a damaging attack on the doorstep lending market yesterday, claiming it was ripping consumers off to the tune of up to £100m a year.
Publishing its provisional findings after a 16-month investigation into the sector, the Commission said it believed lack of competition in the home credit market had helped lenders earn excess profits of more than £500m over the past few years.
As a result, it said, it was considering a range of measures to open up the industry to more competition including obliging lenders to offer comparable products and forcing providers to pay higher rebates to customers who pay back their loans early.
The commission stopped short of recommending a cap on interest rates - some of which are more than 100 per cent - but said it would reconsider introducing a ceiling if its initial recommendations did not work.
Peter Freeman, the chairman of the Commission, acknowledged that customers value the home credit business, but said they were being given a raw deal. "Price competition between the existing lenders is weak, partly because customers seem insensitive to prices, given the greater value they place on factors such as the convenience of the loan and the difficulty in comparing prices between companies," he said.
"There have been almost no reductions in price over the last five years ... and customers are paying too much."
Shares in Provident Financial, the UK's biggest doorstep lender, fell sharply in early trading yesterday, but recovered after conciliatory statements from the group. John Harnett, the group's finance director, said that while the company fundamentally disagreed with the Commission's conclusions, he was not overly concerned at the nature of the recommendations.
However, he said he was looking forward to the end of the process, adding that the investigation had cost Provident some £10m so far.
In a statement to the market yesterday, Provident said: "We believe that the CC's approach on profitability is flawed and we have produced expert evidence from Sir Bryan Carsberg and Professor Colin Mayer to support this view. Customers are not being overcharged for their home credit loans nor is the home credit sector making excessive profits. We will continue to engage with the CC on this topic."Reuse content