Competition watchdog inflicts little damage on doorstep lenders

Britain's doorstep lenders breathed a sigh of relief yesterday, as the Competition Commission revealed it had decided to impose only a mild set of new regulations on the industry after completing a 19-month investigation into the sector.

The commission's proposed remedies include forcing lenders to share customer data, to provide better price information and to increase rebates for those who pay off their loans early. However, it stopped short of imposing price caps.

Doorstep lenders often charge annual interest rates of more than 100 per cent. However, the commission accepted that this is justified by the short periods of time which they tend to lend over, the higher risk of default and the generally small sums involved.

The commission nevertheless reiterated its belief that there was a lack of competition in the sector, and has warned the industry that it will not be afraid to impose price caps if its current round of proposals do not have the desired effect.

Shares in the UK's quoted doorstep lenders - Provident Financial, Cattles and London Scottish Bank - all leapt on the news yesterday, unwinding much of the discount that has been priced into the sector while the commission's investigation was under way. Provident Financial, the country's largest provider of home credit, closed up 40p at 631p, giving it a market value of £1.6bn.

The commission hopes that forcing companies to share data about customer payment records, and insisting upon clearer information for borrowers, will increase price competition and transparency. The commission has also recommended that the Department of Trade & Industry relax the rules on the marketing of home credit, to help stimulate competition. However, it said it wished so-called "cold-calling" to remain illegal.

Provident Financial said it broadly welcomed the proposals, claiming it already adhered to most of the commission's planned remedies. However, it added that it was still in talks with the regulator about its plans to force lenders to increase rebates for those who settle their loans early.

A spokesman for the company confirmed that such a move would have a financial impact on the business, but said it was impossible to know how large it would be at this stage.

The commission estimates that in total, its remedies will cost the industry about £15m a year. Provident Financial has approximately 50 per cent of the UK home credit market.

Earlier this year, the commission said it believed the home credit industry was ripping off consumers to the tune of £100m a year - a claim which Provident denies vigorously.

The National Consumer Council, which made the original complaint about lack of competition in the market, said it welcomed the proposals and believed they would bring "more choice and cheaper loans to the poorest households who are excluded from the mainstream credit market".