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Review of high cost consumer credit

Launched: 2 July 2009 

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Purpose of the study

To establish whether high-cost credit is working well for consumers, focusing on the following four areas:

  1. The level of competition in the market, including the impact of the economic downturn on competition and whether suppliers compete vigorously to deliver benefits for consumers.
  2. The business models of lenders within the sector.
  3. The behaviour and decisions made by consumers when purchasing credit.
  4. Whether consumers get the information they need to make good decisions.

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Findings

1. In some respects, the markets for high-cost consumer credit can be seen to be working reasonably well.

2. The OFT does, however, have some concerns in relation to these markets arising from this review:

  • On the demand side, the relatively low level of ability and effectiveness of consumers in driving competition between providers, given their low levels of financial capability.
  • On the supply side, sources of additional supply such as mainstream financial providers seem to be limited.
  • In such circumstances, competition on price is not effective and prices are high.

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Recommendations

The deep-seated nature of the problems identified illustrates the limited possibilities for the OFT, through this review, to make significant improvements to the way in which these markets work. We have made some recommendations for change but recognise that they are likely to bring marginal rather than fundamental improvements.

The recommendations that we have made are presented under four headings:

  1. Helping consumers make informed decisions on high-cost credit.
  2. Increasing consumers' ability to build up a documented credit history when using high-cost credit.
  3. Improving tools for monitoring the high-cost credit sector.
  4. Promoting best practice among suppliers of high-cost credit.

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Action following review

The OFT welcomes BIS's response to the recommendations made in June 2010 concerning high-cost credit and how to make the market function more effectively, which were published on 21 November 2011 in the review of consumer credit and personal insolvency. The OFT notes that this document confirms much of the views of this market and provides clear and positive steps for improvement.

Consumer Credit and Personal Insolvency: call for evidence

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High-cost credit review details and report

Download annexes of the report:

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Background information

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Contacts

The team leader for the review is Peter Hill (peter.hill@oft.gsi.gov.uk) 020 7211 8806.

The senior responsible officers are:

Ray Watson (ray.watson@oft.gsi.gov.uk) 0207 211 8908
Clive Maxwell (clive.maxwell@oft.gsi.gov.uk) 0207 211 8950

Any media enquiries should be directed to a member of our Press Office.




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