New research from Citizens Advice shows that extending the same rules that cover payday loans to the doorstep lending market could prevent their customers getting into problem debt, and save up to £123 million in interest payments on up to 540,000 loans each year.
It is calling on the Financial Conduct Authority (FCA) to give consumers the same protections as payday loan customers by including home credit in its definition of high-cost short-term credit when it publishes its proposals for the high-cost credit market in the spring. This would protect consumers by:
- Limiting the number of times each loan can be refinanced
- Ensuring they never repay more than twice what they borrowed.
- Home credit is the most common form of high-cost credit problem Citizens Advice deals with, with lenders charging interest rates of up to 1557%. Its new ‘Doorway to Debt’ report reveals the people it helps with issues relating to these loans are more likely than its average debt clients to have a long-term health condition or be behind on essential household bills. Of the estimated 30,000 people Citizens Advice helped with home credit debts in the last year:
- Nearly half (48%) have a long-term health condition or disability. This is higher than for all debt clients (40%) and more than twice the rate amongst the general population (18%).
- Only 32% are in employment. While lower than for Citizens Advice debt clients generally (40%), it is almost half that of the general population (62%).
- Half of clients are in council tax arrears and 43% are behind on water bills
- Clients with home credit debts have unsecured debt totalling nearly half (49%) of their annual income
- One in 10 have more than £2,500 in home credit debt, and a third (34%) had outstanding debt on two or more home credit loans.
Citizens Advice is concerned that irresponsible lending and the increased cost of borrowing due to refinancing is pushing home credit users into a spiral of debt. Its modelling found consumers end up paying back more than twice what they borrowed on up to 490,000 home credit loans each year due to refinancing.
For information and advice, contact Citizens Advice Bassetlaw:
- Telephone service — 03444 111 444 (available Monday to Friday from 10.00am to 4.00pm)
Drop-in service at the Worksop office — The Annexe, Queens Building, Potter Street, Worksop (next to the Savoy Cinema) available:
- Mondays and Wednesdays — 9.30am to 3.00pm
- Friday — 9.30am to 1.00pm
Retford office at — 17b The Square, Retford, available:
- Tuesdays — 10.00am to 2.00pm
- Thursdays — 10.00am to 2.00pm