OFT consults on reference of home credit market to CC

140/04 10 September 2004

The OFT today announced that it is to consult with the home credit industry on making a market investigation reference to the Competition Commission (CC). This is the OFT's response to the super-complaint lodged by the National Consumer Council (NCC) on home credit. The OFT will decide whether or not to make a reference following the consultation, before the end of the year.

Download OFT response to the NCC's super-complaint (pdf 98 kb).
Download Consultation paper (pdf 123 kb).

Home credit is the provision of small unsecured cash loans – typically in the region of £200 to £300 – repaid in fixed (typically weekly) cash instalments, collected by agents who call at the customer's home. Some home credit lenders also sell shopping vouchers or hampers on credit. The market, in terms of debt outstanding, is valued at £2 billion, and it is estimated that 5 per cent of adults have taken out a home credit loan in the last 12 months (see note 4). Around 500 firms are involved in the market, most operating at a local or regional level. Overall, however, the market is concentrated, with four firms accounting for nearly 70 per cent of business.

In its response to the NCC super-complaint, the OFT has identified features of the market for home credit which appear to restrict competition, and which may warrant further investigation by the CC. These are that:

many HC customers are in a poor bargaining position and their financial need may mean that they are not price-sensitive
customers may have difficulty comparing loans and do not appear actively to do so
step-up and 'roll-over' loans tend to tie customers in to existing lenders
agents' relationships with customers contribute to making them unlikely to switch lenders
aspects of the structure of the market may deter entry, particularly on a significant scale.

John Vickers, OFT Chairman, said: 'The home credit industry meets a demand from consumers. But our analysis of the NCC super-complaint has identified questions about the effectiveness of competition. We will now consult with the main parties in this sector on the case for a reference to the CC for fuller investigation.'

The consultation will last for five weeks and close on 18 October 2004.

NOTES

1. The right to submit super-complaints was created by section 11 of the Enterprise Act 2002. A super-complaint is defined under section 11(1) of the Act as a complaint submitted by a designated consumer body that 'any feature or combination of features, of a market in the United Kingdom for goods or services is or appears to be significantly harming the interests of consumers.'

2. On 14 June 2004 the NCC submitted a super-complaint to the OFT about home credit. See NCC website for details. Section 11(2) of the Act requires the OFT, within 90 days of receiving a super-complaint, to publish a reasoned response saying what action, if any, it proposes to take.

3. Under section 131 of the Act the OFT may make a market investigation reference to the CC where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the UK for goods or services prevents, restricts, or distorts competition in connection with the supply or acquisition of any goods or services in the UK or part of the UK. See OFT guidance in the Market investigation references section of this website.

4. Source for market value is Datamonitor UK non-standard and sub-prime lending 2004. Figure for number of UK home credit customers provided by MORI Financial Services Tracking Survey (2004).

Back to: Press releases

Navigate the OFT website:

News and updates

What was new in...

Feedback

Press releases 2004 -