DOORSTEP lenders will lose one of their main sources of business if the Government goes ahead with new plans to close a loophole in consumer credit laws.
The Department of Trade and Industry is looking at banning doorstep lenders from offering shopping vouchers and goods on credit, The Times has learnt.
While the lenders are legally not allowed to make unsolicited door-to-door calls to win new business , they can do so if they are offering vouchers and goods such as hampers.
The proposed ban would form part of new legislation, expected next year, that would update the Consumer Credit Act.
A spokeswoman for the DTI said: “Lenders’ use of shopping vouchers and goods is something that we are looking at as part of a wide range of reforms of credit laws.”
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Doorstep lenders are also under investigation by the Office of Fair Trading after the National Consumer Council launched a complaint against the industry. The NCC alleged that millions of low-income consumers, often denied credit on the high street, were exploited by home credit providers that charge interest rates as high as 900 per cent.
The Consumer Credit Association, a trade body representing doorstep lenders, declined to say if a ban would affect doorstep lenders’ ability to win new business. But John Lamidey, head of the CCA, said: “The DTI has certainly looked at a ban but the ramifications would be huge.
“If you ban the canvassing of vouchers, does that mean you ban the canvassing of mail order catalogues?”
The CCA also insisted that canvassing was just “part of the sales mix” which also includes personal recommendations and advertising. The CCA highlighted one of its members, Park Direct Credit, which had used the selling of vouchers to build up a doorstep lending business of 100,000 customers.
A spokesman for Provident Financial, which controls 49 per cent of the home credit market, said: “Shopping vouchers and hampers are services much valued by customers. Shopping vouchers offer a way to spread repayments on goods which can be bought in many high street stores.
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“If customers like the weekly home collected repayment system which applies to shopping vouchers or hampers, they may then choose to go on to take out a loan from us. The majority of our new customers, however, come via recommendation from friends and family.”
The spokesman added: “At the moment it is legal for us to canvass business in this way and it by no means the biggest way of getting new customers. We will have to see what is said in the new Bill before we can comment on how it will effect our business.”
Cattles, a rival lender, played down the importance of canvassing in generating new business. It released a statement this week distancing the group from doorstep lending, highlighting that it accounted for only 15 per cent of overall lending.
A spokesman for Cattles said: “Canvassing vouchers as a means of getting more home credit borrowers represents a small part of our marketing strategy. Most of our loans are now offered via direct debit.”
Doorstep loans, which have a typical annual percentage rate of 177 per cent, are mainly used to get extra cash for household bills by borrowers who cannot get loans and credit cards on the high street.
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PLAYING THE MONEY GAME
A ban on unsolicited visits would hit lenders because: