Low-income lenders face wrath of Consumer Council

Shares in the two leading lending companies focused on low-income groups fell heavily yesterday after it emerged that the National Consumer Council is likely to make a "super complaint" about the £2bn industry to the Office of Fair Trading.

Shares in the two leading lending companies focused on low-income groups fell heavily yesterday after it emerged that the National Consumer Council is likely to make a "super complaint" about the £2bn industry to the Office of Fair Trading.

Provident Financial, which has nearly half the market, saw its shares fall by 19.5p to 633p. The shares of the second biggest operator, Cattles, fell 17.5p to 321p.

The NCC is due to issue a report on doorstep lending, known formally as home credit, on Monday. That report is expected to highlight a range of damaging effects on millions of vulnerable and low-income families who have little choice but to use this form of credit to help make ends meet.

Deirdre Hutton, who chairs the NCC, said: "Home credit offers a unique service. Small, short-term, unsecured cash loans, for as little as £100, are a lifeline to people on long-term low incomes who are excluded from the mainstream credit market. When they need extra cash for household bills, their child's school uniform, or to cope with the financial demands of relationship breakdown, a new baby or sickness in the family, they turn to the friendly agent who calls every week.

"The deal is done quickly, informally and face-to-face with local collectors who may have been known to the family for generations."

Despite this, these lenders, acting for large public companies such as Provident and Cattles, charge up to 200 per cent to people who usually do not shop around and are deterred from switching to another lender. Under the Enterprise Act 2002, NCC is empowered to make a "super complaint" about a whole market.

If the OFT accepts such a complaint it can either launch an investigation of its own or pass it on to the Competition Commission.

Robin Ashton, Provident's chief executive, said: "I think the share price has fallen more because of the increase in Bank of England base rate. The home credit sector gives customers access to small-sum credit in a way that suits them.

"We lend money to a wide range of people who want to borrow small amounts that they can pay back conveniently from their homes in regular affordable repayments.

"In the midst of a credit boom, our business has been growing by less than 3 per cent a year, and most of our new business comes from customer recommendation."

A spokesman for Cattles said that doorstep lending now accounted for only 15 per cent of its business.