Locked in, kept out: The extent of competition within the UK home credit industry

Steve Brooker and Claire Whyley

An assessment of the extent of competition within the UK home credit market, and the adverse impacts a lack of competition might be having on consumers.

Despite the massive expansion in consumer credit that took place during the 1990s, more than 1 in 5 adults in the UK are denied access to mainstream sources of credit. One alternative credit source is the home credit industry, which offers small, short-term unsecured cash loans, primarily to low-income groups. This study builds a detailed profile of the 2.3 million people who use home credit annually.

It presents a demographic breakdown of the customer base, identifies the triggers to home credit use, and explores the attitudes and experiences of home credit users. The report considers how well home credit matches the requirements of low-income consumers compared with other credit products. The conduct of customers can provide clues as to how effectively competition is working within a market, and information on consumers’ decision-making behaviour, levels of switching and the presence of switching costs, is used to determine whether there are features of the home credit market that are hindering effective competition. The report is based on the findings of quantitative and qualitative research with home credit customers and collection agents. It concludes that the home credit product meets the needs of its customer base well, but that certain features of the home credit market act to constrain effective competition.

This research formed part of the evidence base that led to a super-complaint from the NCC, which is now the subject of a Competition Commission inquiry.

Available in electronic format only.

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