Now, would you like to borrow money at 1069%? That’s one offer on a new website that for the first time details for loans given by Doorstep and Short Term, credit providers who lend money to low income customers and those without a good credit record. The site has been set up following an investigation by the Competition Commission, which found there was indeed limited competition between lenders who sell these loans door-to-door. I went through the website yesterday with debt specialist Damon Gibbons.
Well we’re here in front of a Money Box computer in a quiet room in the office and we’re going to put in an amount of money. With me is Damon Gibbons, Chair of Debt on our Doorstep. Damon, let’s just think of a typical amount. What would be typical to put in here?
GIBBONS: Well on average I think somewhere between £300 and £500, so let’s go for £400.
LEWIS: £400. And what sort of period shall we put in?
GIBBONS: Well most door-to-door loans are between 6 and 12 months, so maybe if we headed for sort of 23 to 40 weeks.
LEWIS: Give me a postcode where we’re going to find a good variety.
GIBBONS: Well let’s try mine - my local area in Leicester, so LE3.
LEWIS: LE3 - okay put that in. And let’s see what we get. Okay, now
we’ve got fourteen results. They range from 188% APR; 365.1 - that’s
with Provident Personal Credit, which is a well-known brand; 440% with
Shopper Check. And if we go right to the end, we get … oh there’s 664.9%
APR. And the most expensive is actually a lower APR. This is Short Term
Finance. 446.2. Total amount for credit is 673, so you’re paying £273
on top of your £400. That really is quite extraordinary.
GIBBONS: Yes, absolutely so. I mean this is quite phenomenal really;
that you know if there was genuine competition in the market, then you
would expect that perhaps a) the price pressure would be downwards and
also that there would be quite a considerable grouping of costs involved
here. But you’ve got a wide spread between a door-to-door lender
charging £120 total charge of credit and one, as you say, charging well
in excess of £250.
LEWIS: You’re saying there’s a variety but no real competition. Might this site not introduce that competition?
GIBBONS: Well it depends obviously really how customers in the market
behave and you know there’s very few of them that we would suggest would
use this sort of mechanism at the moment. Most people are introduced to
door-to-door lenders because the agents are active in their area, they
know their friends, the neighbours. Some of them are even related to
them. And so it’s that sort of personal association that actually gets
people involved rather than a sort of rational search for the cheapest
on an Internet site.
LEWIS: But even though these rates of interest seem fairly eye watering,
they are better, aren’t they, than going to loan sharks - illegal loan
sharks who have very heavy handed ways of collecting money?
GIBBONS: Well nobody would encourage anybody to go to an illegal loan
shark for obvious reasons, but I think it’s coming to something when at
the end of the day we have to compare these legal companies with illegal
loan sharks to make these companies look good. It says something has
gone really quite seriously wrong with the way that the market works.
LEWIS: Of course what the companies say to us is that although these
APRs seem very high, it’s not really a fair comparison; that the loans
are over a short period of time, they’re collected on the doorstep which
is expensive, and if you look at any loan over 20 or 30 weeks the APR
can seem very high. So they say this isn’t a fair way of comparing them
with the banks or credit cards.
GIBBONS: Well I think what’s very good about this site actually is that
it doesn’t just show the APR but it actually quite prominently displays
the total charge for credit. That’s the total amount of money you’re
actually going to pay back in addition to the amount that you borrowed.
And quite clearly on this site if you found a postcode with a credit
union available, you’d find that on £100 you might pay back £106 to the
credit union. Here in some instances we’re finding you’re paying back
you know £160, so it’s ten times as expensive as a credit union. And I
think that that total charge for credit is the key figure. I don’t think
the industry can argue with that.
LEWIS: Damon Gibbons. And that website does include credit unions but only in areas where they exist and have signed up.