Direct Line plans telephone loans

DIRECT Line, the cut-price direct sales insurance subsidiary of the Royal Bank of Scotland, hopes to start selling deposit accounts and personal loans by telephone next year.

Peter Wood, chief executive of Direct Line, said he hopes to offer higher rates on deposits than many banks and building societies. He hopes to undercut the same institutions, and finance houses, on personal loans.

Direct Line was set up by Mr Wood eight years ago to offer low- cost insurance. It does not sell through brokers so it is able to offer lower rates because it does not pay commission. One million households and motorists now insure their homes and cars with the company and Mr Wood expects that figure to climb to between 2 and 3 million people within the next three years.

Mr Wood said Direct Line would probably contact about 40,000 or 50,000 existing customers offering them the chance to participate in a pilot scheme in February and March.

He wants to launch instant-access savings accounts, on which he would offer rates similar to those on some money market- linked cash unit trusts and on many building society accounts.

Customers would have easy, speedy access to their money. Mr Wood wants to offer a service where they could issue instructions for deposits and withdrawals by telephone, and Direct Line would be able to move the money automatically into and out of their bank accounts.

'We already collect premiums by direct debit and have details of our customers' bank accounts,' he said.

Mr Wood believes Direct Line could offer a more streamlined service than building society postal accounts. These offer high rates of interest but customers usually have to wait a day or two to receive cheques when they make withdrawals.

Mr Wood, whose background is in computer systems, is not overly impressed by the range of products available from banks and building societies at present.

'Many of the ones with higher rates have complicated penalty clauses. We will not have anything like that,' he said.

Direct Line will be experimenting with a range of personal loans at fixed and variable rates. Most existing personal loans have fixed rates, and many people are locked into high rates dating from when the base rate was several points higher than it is now.

If the company is successful with personal loans, it may move on to mortgages.

Mr Wood said that initially RBS would provide the funding for the loans and deposit accounts but ultimately Direct Line may apply for authorisation to lend and take deposits itself.