Consumer charity, Citizens Advice, has called for a cost cap to be set on doorstep loans stating that the loans are responsible for increasing levels of unmanageable debt in the UK.
According to a Citizens Advice report on doorstep lending, the charity claims to have evidence indicating that doorstep lenders use high-pressure sales tactics coupled with poor affordability checks and aggressive debt collection practices. The charity states that it has helped approximately 23,600 borrowers with unmanageable doorstep loans in 2016. Citizens Advice estimates that more than 1.3 million UK citizens use doorstep loans.
The charity has called out UK’s financial services watchdog; the Financial Conduct Authority (FCA) to introduce a cost cap on the interest and fees charged on doorstep loans in the same way the watchdog put a cost cap on payday loans.
According to Citizens Advice, the new limit should ensure borrowers don’t pay more than (double) the amount borrowed in total charges. Currently, doorstep loans aren’t included in the FCA’s definition of high-cost credit which means they aren’t covered by the payday loan cost cap introduced recently.
Citizen Advice argues that an extension of the cost cap to cover doorstep loans will safeguard borrowers in financial distress even though there is no doorstep loans lender charging more than double the amount borrowed.
The charity has also gone ahead to state it would prefer to see the end of traditional doorstep loans marketed door-to-door as well as the current Financial Conduct Authority guidelines on responsible lending transformed into rules. The Charity also wishes for more stringent supervision on collection practices.
The three largest doorstep loan providers in the UK include; Morses Club PLC, Non-Standard Finance PLC, and Provident Financial PLC.
In response to Citizens Advice, Morses Club PLC C.E.O. Paul Smith stated that Morses Club customers value the lender’s service as is evident from the independent customer satisfaction surveys the company conducts. The survey scores over the past two years indicate that over 95% of Morses Club customers are happy. According to Smith, Morses Club prides itself in treating customers fairly in business processes as well as how the company’s agents/teams conduct themselves.
Morses Club also goes ahead and assesses the affordability of all its loans using high-tech technology ensuring that loans are issued only to those customers that are able to pay back. According to Smith, Morses Club has invested in costly software to ensure doorstep loan lending practices are above board. Smith also went ahead and stated that the affordability of Morses Club doorstep loans has decreased over the years dispelling the need for a cost cap as suggested by Citizens Advice.