Not many of us will defend payday loans and lenders. Derided as ‘legal loan sharks’, these short-term loaners that charge extortionate interest rates are proven time and again to lead to nothing but misery for the users, regularly contributing to problem debt and the stress and related mental health issues that comes with it.

What you may not be familiar with, however, are home credit loans. Commonly referred to as ‘doorstop lending’, this is a lesser known but just as serious problem for those who are turned away from more conventional lenders and is currently used by more than 1.6 million people in the UK, making it one of the largest high-cost credit markets in the country.

It’s also the most common form of high-cost credit problem that Citizens Advice deals with. Lenders can charge up to 1,557% interest on these loans and the charity’s recent ‘Doorway to Debt’ report reveals that the people they help with these loans are more likely than the average debt client to have a long-term health condition or be behind on essential household bills.

Of the estimated 30,000 people Citizens Advice helped with home credit debts in the last year:

Nearly half (48%) have a long-term health condition or disability. This is higher than for all debt clients (40%) and more than twice the rate amongst the general population (18%).

Only 32% are in employment. While lower than for Citizens Advice debt clients in general (40%), it is almost half that of the general population (62%).

Half of clients are in council tax arrears and 43% are behind on water bills.

Clients with home credit debts have unsecured debt totalling nearly half (49%) of their annual income.

1 in 10 have more than £2,500 in home credit debt, and a third (34%) had outstanding debt on two or more home credit loans.

Clearly, something needs to change. Citizens Advice is calling for the Financial Conduct Authority (FCA) to give consumers the same protections as payday loan customers by including home credit in its definition of high-cost, short-term credit when it publishes its proposals for the high-cost credit market in the spring. This would protect consumers by limiting the number of times each loan can be refinanced, and ensuring they never repay more than twice what they borrowed.

It could also prevent their customers from getting into problem debt and save up to £123 million in interest payments on up to 540,000 loans each year.

Worryingly, however, the charity’s evidence also suggests some lenders are failing to protect consumers when proper affordability checks are not carried out. This is a much more serious breach of trust and so they are also asking the FCA to introduce new rules and give high-cost credit providers clarity about what these checks should include to prevent people from being lent money that they cannot afford to repay.

In one particularly troubling example of irresponsible lending, one person with severe learning disabilities came to Citizens Advice with home credit debts of £3,016. The lender had offered their client further credit despite being advised by their social worker that an appropriate adult needed to be present for any financial decisions.

Gillian Guy, Chief Executive of Citizens Advice, said, “There’s no questioning the evidence – the FCA’s cap on payday lending has been a success. But it’s time now to address the problems consumers are facing in the home credit market.

“Home credit customers need to be protected from getting into problem debt. They are susceptible to the high cost of these loans because of easy refinancing – and there is currently no total limit on what they repay.

“The FCA should build on the success of the payday loan cap and extend their definition of high-cost short-term credit to include home credit, making sure that no-one pays back more than double what they borrow.”

Although not criticised as publically as payday loans, doorstep lending is clearly just as problematic and is in need of a similar level of regulation. The victims of its more unscrupulous providers tend to be the vulnerable in our society and they deserve much more protection than is currently afforded to them. If you know someone, or are the victim, of such lending practices, don’t sit in silence; reach out for help.

citizensadvicemanchester.org.uk

David Ewing