UK warnings about cheap credit on the door-step

August 1st, 2009

New calls have emerged this week for regulation of the activities of door-step lenders from an unexpected source. The children’s charity Barnardo’s says new regulation is needed to curb “extortionate” interest rates and prevent firms deliberately targeting poor and vulnerable families.

The charity’s new ‘Counting on Credit’ report cites Provident Financial, the UK’s biggest doorstep lender, claiming it charges interest of up to 545% APR.

Provident Financial has published figures this week which show that the number of borrowers using its service has risen this year. Loan companies have generally become more popular during the last few years as people have increasingly struggled to get credit from banks or building societies.

However, Barnardo’s says taking out such payday loans often plunges families into worrying levels of debt. The charity says ‘extortionate interest rates are typical of many doorstep lenders which will continue to flourish unless the government steps in’.

While nobody is claiming that loan companies are breaking the law, it is becoming ever more clear that they are deliberately targeting “desperate” people.

The cycle which has emerged over the past year and a half is that parents can’t afford the basic necessities for their children, so are forced to borrow. But banks don’t want their custom so they are turned away and excluded from access to everyday overdrafts and loans with reasonable interest rates. They are then left with no choice but to take what they can get.

The main defence of loan companies is that APR is considered to be a poor measure of short term, small sum credit and is not well suited to describing their loans. There is a degree of truth in this but it is a small one, and is negated entirely by unscrupulous business practises such as targeting desperate families with little chance of paying the loan back on time.

The Government is sure to look kindly on the proposals for regulating door-step lending companies but they are unlikely to achieve anything on the issue in the months left to them before the election. For the time being potential borrowers should avoid easy credit because, like so many things in life, if it looks too good to be true then it is.

This entry was posted on Saturday, August 1st, 2009 at 7:08 am and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Leave a Reply

Click here to cancel reply.

Name (required)

Mail (will not be published) (required)

Website