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OFT refers home credit market to Competition Commision

The Office of Fair Trading has referred the supply of home credit to the Competition Commission for further investigation.

This follows the OFT’s analysis of a super-complaint submitted by the National Consumer Council, and further consultation with home credit lenders.

Home credit is the provision of credit, typically small sum cash loans, the repayments for which are collected in instalments, often weekly or fortnightly, by collectors who call at the customer’s home.

The market, in terms of debt outstanding, is valued at 2bn. Around 5% of adults have taken out a home credit loan in the last twelve months.

Around 500 firms are involved in the market, most
operating at a local or regional level. Overall, however, the supply of home credit is concentrated, with four firms accounting for nearly 70% of business.

Having considered the NCC super-complaint, and the responses to its consultation, the OFT has taken the view that the legal test for a market investigation reference has been met.

Competition among home credit lenders appears to be restricted, with lenders having limited incentive to compete on price or to attempt to win business by taking over other lenders’ loans.

The following features of the market appear to be causing or contributing to this restriction of competition:

* Many home credit customers are in a poor bargaining position and their financial need may mean they are not price-sensitive

* Customers may have difficulty comparing loans and do not appear actively to do so

* Step-up and roll-over loans may, to the extent that they occur, tie customers in to existing lenders

* Collectors’ relationships with customers contribute to making them unlikely to switch lenders.

* Aspects of the structure of the market may deter entry on a large scale.

John Vickers, chairman of the OFT, says: “Our examination of the evidence presented to date gives us
reasonable grounds to suspect that there are features of this market which restrict competition.

“It is now for the Competition Commission to undertake a thorough investigation of the market and, if necessary, to ensure that appropriate remedies are put in place.”

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