Tories: Doorstep loan rates obscene
Updated on 09 January 2009
Despite the Bank of England cutting its main interest rate close to zero, some borrowers are paying interest of up to 10,000% on internet-based and doorstep loans, according to a Conservative report.
Tory housing spokesman Grant Shapps said it was "obscene" that some of the country's most vulnerable households were paying interest in four figures at a time when the Bank base rate stands at a record low of just 1.5%.
He said a Conservative Government would take action to create more competition in the home credit market, which is estimated to be worth £3 billion a year but is dominated by just six companies.
Forcing companies to conform to the same data-sharing standards applied in the mainstream banking sector would allow consumers to switch more easily between lenders, said Mr Shapps.
And Tory plans for a free National Finance Advice Scheme would help consumers choose cheaper borrowing options - such as Credit Unions - following recent research suggesting that as many as 79% did not understand vital terms like APR (annual percentage rate).
Home credit companies typically offer "payday" loans to tide people over periods of financial pressure. Loans rarely exceed £1,000 and are usually paid back in instalments within three months.
Companies are often ready to make decisions within minutes and extend loans to people with less-than-perfect credit histories. But borrowers taking out a loan of £200 for one month often find themselves paying back £250 or £300 - the equivalent of an APR of well over 1,000%.
Mr Shapps's report cited one company, QuickQuid, whose website states that "depending on the loan term, typical APRs will range from 1351.7% to 9889.3%".
He said: "When a constituent showed me a leaflet offering doorstep loans at 184% APR I decided to investigate how the home credit market operates. It wasn't long before I had uncovered payday loans of up to a staggering 10,000% APR.
"As the Bank of England slashes interest rates close to zero, we think it is obscene that anyone should end up paying 10,000% APR, particularly when the evidence suggests that these loans are targeted at some of the most vulnerable members of our society. This report proposes practical measures to combat the growing problem of exploding personal debt."
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