A summary of new research published yesterday by the Office of Fair Trading, (OFT), showed that significant numbers of consumers are fairly or very dependent on high-cost credit.
The OFT is cuurently looking at industries such as pay day lending, pawnbroking, rent to buy, hire purchase, home credit and other short-term loans. In its initial research the OFT found that 27 per cent of home credit users have more than one loan outstanding at any one time, and 26 per cent use home credit on a continuous basis. For rent-to buy agreements, 17 per cent have more than one loan outstanding at any one time, and 10 per cent use such agreements on a continuous basis.
Consumers using high-cost credit said that the speed at which money could be accessed was the main reason they took out these loans. The regulator said there was limited evidence to show that those who access high-cost credit shop around for better offers or different products. It added that people often misunderstand APR rates and use them incorrectly when making comparisons.
The OFT’s research looked at the variety of policy approaches taken in other countries. However, it said simple interest rate caps have been circumvented by firms increasing their fees and charges, whilst caps that also limit charges can be circumvented through restructuring the transactions or cross-border lending.
It is now inviting comments on the research to test the completeness and robustness of the evidence it has gathered. A final report will be published next year setting out conclusions and recommendations.