Ban on 1557.5% APR doorstep loans

During the summer of 2018 the Financial Conduct Authority (FCA) is expected to recommend changes to doorstep loans. It may involve bans, caps, and other limits. The lenders are not currently regulated by the government, and some of doorstep loans are charging consumers up to 1557.5% Annual Percentage Rates.

For those who do not know, doorstep lenders are not currently regulated. They usually provide clients anywhere from £100 to £1000. Most of their customers are on a low income or are vulnerable in some other way. The lack of rules and regulations for these high cost lenders is a gap in what the FCA and central government have been looking at. In fact, much of this industry is new, and it was created in an effort to get around some of the caps on payday loans.

Doorstep lenders will deliver the money directly to the borrower’s home, even up to the £1000. It makes it easy for borrowers to get quick cash, but it is expense with APRs varying from 50% to up to 1557.5%. Partly due to this fact of the money being east to get many of the borrowers are vulnerable. They may be older people that live on a pension who can’t make it out of their home. Or it could be a disabled person, or maybe the borrower does not even have the cash to pay for transportation. So, they turn to doorstep loans to get quick funds.

Not only is the cash brought directly to the lenders doorstep, but the lender will also send someone to a borrower’s home to collect the interest and principal each week. Or they push other financial products on the family. This makes it even easier to borrow money as the client never even needs to leave their home.

Problems with doorstep loans

It is almost impossible for any person to pay up APR rates up to 1557.5%. The well off and rich can’t afford that either, much less a family on a low income or the vulnerable. As a result, tens of thousands of borrowers are going into arrears on their debt from doorstep lenders. The FCA as well as Citizens Advice report that as many as 30,000 people per year, including in 2017 and 2018, seek assistance due to the high cost of credit.

Not only are tens of thousands of households going into debt because of doorstep loans, but most of them are vulnerable. As of 2018, about two of three are unemployed, half are disabled, and 1/3 are single mums or dads.

Not only are the APRs of over 1500% excessive, but most of the borrowers take on more than one doorstep loan. About one third of borrowers do this. Trying to pay the high APR on one loan is bad enough and taking on two is impossible. The end result is, for those who can pay off the loan, they often end up paying twice what they borrowed. So, if someone took on £1000, they end up paying back a total of £2000.

Organisations including Citizens Advice and various MPs are pushing the FCA to complete it review of the high cost of credit lenders. They want the government to place price caps and other regulations on doorstep loans. Some of the other steps to take could be limited the number of doorstep loans that can be provided to any one borrower, putting caps on the APR rates, stop the refinancing of them, and classifying the industry as high cost-short term credit which is done for payday lenders. Expect to see more on this issue from the FCA during in May or June of 2018.