Changes in Home Credit

Commentary | 22/01/24

Back in the early noughties, the home credit market was under intense scrutiny for a lack of competition which led to the then Competition Commission investigating the sector. It was thought that it was difficult for consumers to compare products or switch between providers to find the best price. Following the investigation an order was passed that placed various conditions on the sector.

Fast forward to last week and we were pleased to hear that the Competition and Markets Authority, the successor to the Competition Commission, has suspended parts of the original home credit order and published an invitation to comment on a proposed review of the order.

For some there may be no surprise that just one of the six original larger lenders active in the market remains today. We have seen the home credit market drop away under regulatory pressure and the activities of claims management companies driving complaints. Independent research suggests this might be as much as a 90% reduction.

That generates questions and concerns about what happens when regulated credit is stripped away. There is growing evidence that this has led to the growth of illegal lending throughout the UK. Unfortunately, this more significant issue is not getting the focus it deserves. We continue to raise these concerns with both the FCA and HM Treasury.

One of the drivers of the original inquiry was down to home credit customers having a lack of other borrowing options. This problem hasn’t gone away. Recent customers will face the same challenges. Many are likely to have turned to family and friends or loan sharks. And we know the lines between these two groups can become blurred quickly.

This review covers the “Lenders Compared” price comparison website set up following the order. All lenders were required to list their products on the site, which was to be funded by the larger firms within the market. As larger firms like Provident, Non-Standard Finance and Morses Club have left the market, this is now unsustainable. There is also a question as to whether a price comparison site remains useful to consumers in this area of credit. There is likely to be more relevant information and advice that could be shared with these individuals.

We all want consumers to be given clear information about their options for borrowing and the cost of loans, but there has been immense regulatory change in recent years. Regulation now sits with the FCA and lenders in this sector must comply. The introduction of the Consumer Duty is also redefining how firms and their customers interact.

The market has changed dramatically since 2007, and parts of the order no longer make sense. The CCTA will call for the review to go ahead and question whether parts of the order need to be updated, given the current state of the market, nearly 20 years on.

We will constantly push for more focus on the more significant access to credit questions.

As always, if you have views to share, then please get in touch with us.