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The lack of competition in the market for home credit means consumers are
being overcharged for their loans, the Competition Commission (CC) has found in
its provisional findings report into competition in the home credit market.
In the report summary, the CC has provisionally concluded that the lack of
competition, from other credit products, new entrants or among the home credit
providers themselves, means that customers face higher prices for their loans
than would be expected in a competitive market.
The CC currently
estimates that it may have amounted to as much as £100 million a year over the
last five years across the whole market, which would imply that a home credit
customer pays over £25 too much for an average loan, or £9 per £100 borrowed,
and that home credit lenders have been able to earn more than £500 million in
profits in excess of the cost of capital in the last five years.
The findings are provisional, and the CC will now discuss them further with home
credit companies before reaching final conclusions later in the year.
Peter Freeman, Chairman of the CC explained: “Customers value home credit
because it suits their needs very well, but the fact is that they are paying too
much for it, because of the lack of competitive pressure in the market.
“Price competition between the existing lenders is weak, partly because
customers seem insensitive to prices, given the greater value they place on
factors such as the convenience of the loan and the difficulty in comparing
prices between companies.
"There have been almost no reductions in price over the last five years. We have
found that few customers switch between lenders, partly because lenders who
already have a relationship with a customer have major advantages over lenders
who do not.
"Their greater knowledge of the customer’s circumstances and creditworthiness
allows them to lend more readily than any other lender could.
“Other credit products, ranging from credit cards and personal loans through to
mail order, pawnbroking and credit unions, do not act as any constraint on
prices.
"There are also several factors which discourage other companies from
entering the market or expanding to challenge the existing lenders.
“The result is that customers are paying too much".
Source:
Getting Paid
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