A door-to-door loan or a home credit is a process in which a person obtains funds at his home, and the majority of our population is opting for the same, with a trust and belief that the person selling these products would deal ethically. Yet how many of them are actually reliable and trustworthy? Such situations demand a need for regulation. The need to protect a consumer’s rights, when he himself cannot. When he is unaware of the options, which are appropriate to him. And when there is no one who would listen, while he is trapped in the things which cannot be controlled or reversed.
According to the charity, Citizen’s Advice, around 1.6 million people in the UK use doorstep loans, commonly known as home credit. These people usually end up paying twice the amount they borrowed. Moreover, irresponsible lending and the increased cost of loans due to refinancing pushes doorstep loan users into a web of debts.
From a survey of 3,40,000 people, 30,000 of them were struggling with doorstep or home credit loans. Out of these 30,000, 48% had a long-term health condition and only 32% were employed. Half had council tax arrears and 43% were behind on their water bill payments. (Data sourced from a report published by the Citizens Advice Charity).
The interest rate for a doorstep loan has reached as high as 1557% and the condition of these consumers trapped in loans has reached a catastrophic level.
Recently, when reports stated that a huge number of consumers faced disputes with payday loans, the FCA regulated and capped the loan amounts and the rate of interest that can be charged. This was successful in helping the debt-ridden consumers and a visible increase in timely repayments was observed too. Hence, a similar regulation on the doorstep loans is also needed. According to various studies and reports, it can save up to 123 Million Pounds in interest payments of up to 5,40,000 loans a year.
After a successful campaign of capping payday loans, the FCA has moved its focus towards the identification of other high-cost lending. Therefore, it is highly possible that a regulation or capping on the doorstep loans is soon to happen. The FCA is working its way up to resolve these issues while the need to preserve the useful elements of these products for the consumers remains.
A spokesperson for the FCA said, “Doorstep or home credit lending is one of the areas of high-cost credit and is identified as loans with potential issues”.
FCA may also publish reports to clarify its regulations on creditworthiness and affordability for the lenders. So that with a better understanding of this concept, the lenders can provide better and refined versions of these loans to the consumers.
The main reason to regulate a doorstep loan is the high-interest rate and currently, there is no capping on the repayment amount after refinancing. Also, there are other unethical ways of conduct shown by some unregulated lenders. These lenders do not follow the prescribed codes and regulations set by the FCA and make such products to be cumbersome and less user-friendly for the people.
Many lenders selling this loan do not follow the guidelines to sell these loans. To quote an example, a lender cannot offer loans to you uninvited and they need to arrange separate visits to discuss the details and for the time you would sign up for it. So that you get some time to think over such deals and if you need to change your mind regarding the product. But many unregulated lenders choose not to take these necessary steps. They nudge you into taking these loans, which may be unaffordable and useless for you. Bringing you in an uncomfortable position while at its repayment.
So a need to regulate these activities arises with such instances and when these loan sharks and financial leeches find the loopholes in this process.
In order to prevent further damages being caused to Britons, the FCA should come up with similar capping mechanisms and regulations as they did to the Payday loans in the past.
Doorstep loans do bring convenience to you, but at what cost? On your mental and financial health and stability? What is the need for such things and utilities when they become more of a liability instead?
So far, progress has been made in this direction and a little few things are being changed. Campaigns that beware consumers from unregulated lenders are in the pipeline. But a drastic change in these loans is still anticipated.
Yet and still, there are some regulated brokers in the market as well. They provide ethical treatment to their consumers and with different lenders on their panel, they present various options in respect to the nature of these loans.
For a closer insight on these loans with a regulated broker, click here.