OFT considers doorstep credit reference

The office of Fair Trading took its investigation into doorstep lending one step further yesterday, deciding to begin a consultation with the industry to decide whether it should refer the matter to the Competition Commission.

The office of Fair Trading took its investigation into doorstep lending one step further yesterday, deciding to begin a consultation with the industry to decide whether it should refer the matter to the Competition Commission.

The OFT began looking at the sector when it received a "super-complaint" from the National Consumer Council in June. This is a mechanism created by the recent Enterprise Act, giving authorised consumer groups the right to demand a preliminary OFT inquiry into any market which they believe may not be operating in the best interests of the consumer. The OFT must reply to a super-complaint within 90 days.

The NCC's complaint centred around concerns over the relatively low levels of competition in the doorstep lending market, where often just one company operates on any given street or estate. Due to the small sums borrowed, often less than £100, the headline interest rates are often very high - sometimes more than 150 per cent, a factor the NCC believes could be improved by greater competition.

The providers in the market, the largest of which are Cattles and Provident Financial, remain concerned that drastic regulation of the sector, such as the introduction of a price-cap, would force them to withdraw from the market.

John Vickers, the OFT's chairman, said: "The home credit industry meets a demand from consumers. But our analysis of the NCC super-complaint has identified questions about the effectiveness of competition. We will now consult with the main parties in this sector on the case for a reference to the CC for fuller investigation."

Deidre Hutton, the NCC's chairwoman, said: "This is a highly significant breakthrough for at least 2 million people on low incomes. We hope the market will now be put to the test and the industry called to account. Whatever the OFT decides, it is clear from our research that people on low incomes are starved of affordable credit choices that meet their specific needs."

Provident Financial said it would participate fully in the consultation and that it was not surprised the OFT needed more time to look at such a complex market. But it reiterated its belief that competition was strong among the small number of providers. It said 72 per cent of its customers use a source of credit other than Provident's.