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OFT refers home credit market to competition commission

212/04      20 December 2004

The OFT has referred the supply of home credit to the Competition Commission for further investigation, following its analysis of a super-complaint submitted by the National Consumer Council (NCC), and further consultation with home credit lenders.

See market investigation reference page

Home credit is the provision of credit, typically small sum cash loans, the repayments for which are collected in instalments (often weekly or fortnightly) by collectors who call at the customer's home. The market, in terms of debt outstanding, is valued at £2 billion. Around 5 per cent of adults have taken out a home credit loan in the last twelve months. Around 500 firms are involved in the market, most operating at a local or regional level. Overall, however, the supply of home credit is concentrated, with four firms accounting for nearly 70 per cent of business.

Having considered the NCC super-complaint, and the responses to its consultation, the OFT is of the view that the legal test for a market investigation reference is met. Competition among home credit lenders appears to be restricted, with lenders having limited incentive to compete on price or to attempt to win business by taking over other lenders' loans. The following features of the market appear to be causing or contributing to this restriction of competition:

• many home credit customers are in a poor bargaining position and their financial need may mean 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 may, to the extent that they occur, tie customers in to existing lenders
• collectors' relationships with customers contribute to making them unlikely to switch lenders; and
• aspects of the structure of the market may deter entry on a large scale.

John Vickers, OFT Chairman, said:

'Our examination of the evidence presented to date gives us reasonable grounds to suspect that there are features of this market which restrict competition. It is now for the Competition Commission to undertake a thorough investigation of the market and, if necessary, to ensure that appropriate remedies are put in place.'

NOTES

1. The right to submit super-complaints was created by section 11 of the Enterprise Act. 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 and services is or appears to be significantly harming the interests of consumers.'

2. Under section 131 of the Enterprise Act 2002, the OFT may make a market investigation reference to the Competition Commission (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.
Download Market investigation references (pdf 208 kb)

3. On 14 June 2004 the NCC submitted an informal super-complaint to the OFT about home credit (see NCC website). The OFT said it would treat this as if it were a formal super-complaint. On 10 September the OFT published its reasoned response to the super-complaint (within the 90 day period set out in section 11(2) of the Act) and a consultation paper on a market investigation reference to the CC (see press release 140/04 and OFT publications OFT 747a and 747b, from the publications page). Under section 169 of the Act, the OFT must consult any person on whose interests a proposed reference is likely to have a substantial impact. The consultation with home credit lenders closed on 18 October.

4. The text of this decision will be placed on the market investigation references section as soon as is reasonably practicable.

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