Have you ever had someone knock on your front door and offer you a loan? Quick Loans Express explains in depth all you need to know about home credit – doorstep loans and whether they are a safe option.
Fraudulent doorstep loan applications
A Fraudulent Home Credit Incident
A 55-year-old woman from Dundee was found guilty of creating fake loan agreements for customers with poor credit ratings. Without their consent, she used the names and addresses of people she knew. Jacqueline Mulligan was able to get £15,000 worth of loans approved by her employers. Her employers, Shopachek Financial Services, offer short-term loans. These are repaid weekly when their agent visits borrowers’ homes. They became suspicious when they noticed that she had issued a lot of loans to the same customers.
In her defence, Mrs Mulligan said she’d only received a small commission for these fraudulent loans. Only her personal circumstances saved her from a prison sentence. Bearing this story in mind, isn’t it time that home credit lending, or doorstep lending, was subject to the same vigorous regulation as instant payday loans online?
In this article, we look at the size of the home credit market and the typical borrower. We consider the use of agents like Mrs Mulligan. Have there have been too many complaints about them? Finally, we see what the FCA has to say about home credit and if there are any plans to implement changes, like they have done with direct loans.
How big is the Home Credit Market in the UK?
As a result of research published in July 2017, the FCA found that 1.6 million Britons, or 3.1% of the adult population, have outstanding debts to doorstep lenders. The average size of their debt had risen from £710 to £770 since 2015. Citizens Advice revealed that in 2015 it had helped 23,000 people with unmanageable doorstep debts. Of those people, a third had taken out home credit more than once.
Doorstep lenders make use of agents who go around their allocated area. Agents help people fill in their loan applications and collect their customers weekly repayments. The fact that agents visit people in their homes and often build up a relationship with their customers has both a positive and a negative side. The main benefit is that if people are struggling in a particular week because of unexpected expenses, they can explain to the agent face-to-face. Putting a human face to someone’s troubles often means that these people are treated more sympathetically than by someone hearing the same story over the phone.
On the other hand, there are worries that a relationship with the agent means that the customer may depend on them too heavily. In particular when it comes to making decisions regarding their finances. In this way, they may be encouraged to roll-over the debt, adding to how much they’ll end up repaying. Citizens Advice found that the typical customer with a home loan has little or no credit history. They may have faced periods of unemployment, family break-ups and ill health.
Customer Satisfaction with Home Credit Loan Agents
Apart from the undue influence they may exert on their customers, there have been complaints about the behaviour of some home credit agents. One concerns the fact that they cold-call potential customers. They actively encourage them to take out loans that they don’t really need. The other problem regards their debt collection tactics. Agents for doorstep lenders receive a commission according to how much money they collect, rather than how many loans they grant. Therefore, if customers don’t make their regular repayments, it ultimately affects how much they earn. Citizens Advice announced in February 2017 that they had received complaints from people about these agents using intimidating behaviour to get their repayments. These stories sounded more like loan sharks than respected lenders.
FCA Plans to Make Home Credit Loans Safer
The FCA’s final report into short-term high-cost credit facilities like home credit was publihsed in Spring 2018.
The FCA want to examine the relationship between agents and customers. Although doorstep lenders say that it isn’t in their agents’ best interests to give loans to customers who can’t repay, do unscrupulous agents care if they ever repay? If they can keep receiving repayments over longer and longer periods of time, they’ll end up earning more in commission. As a result of concern that the agent-customer relationship could lead to increased financial distress, the FCA is thinking of possible ways to protect borrowers. The FCA announced that in spring changes to the way doorstep refinance loans. Lenders are no longer allowed to offer new loans or refinance at collection unless specifically requested from the customer. It is estimated to save £34 million for consumers a year.
The question of staff incentives, remuneration and performance, is another issue that the FCA address. They believe that home lenders should manage risks to consumers from how they reward their sales and collection staff. The key to improving this aspect of the service given, both before and after a loan is awarded, is via thorough staff training. This would also address the issue of acceptable collection tactics, regardless of the sort of short-term loan.
So, is Home Credit Safe?
Companies which give home credit loans depend on a great deal on the character and behaviour of their agents. This more than anything affects how the wider community perceives their company.
This agent-customer relationship can be positive because it enables customers to confide in a familiar figure when they have financial problems. However, people can abuse the resulting relationship, as we’ve seen in the example of Ms Mulligan or in cases where agents use intimidation to collect outstanding loan repayments. The key to making doorstep lending safer is to make sure that the company adequately trains agents. Also, their performance should be regularly monitored to ensure that they’re abiding by their company’s code of practice.
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