OFT publishes emerging evidence in credit review
140/09 8 December 2009
The OFT has today published a summary of research and emerging evidence from its high-cost credit review.
The summary includes the results of a consumer survey, initial results from behavioural economics research, a review of international policy approaches to high cost credit, and evidence on the impact of the recession on competition in the market.
The research showed that the majority of consumers understand what types of credit are 'high-cost', but a significant number - over a quarter for some products - said they were fairly or very dependent on high-cost credit in their day-to-day life. Consumers using high-cost credit said that the speed at which money could be accessed was the main reason they took out these loans.
There was limited evidence to show that those who access high-cost credit shop around for better offers or different products. Around one-third of consumers using high-cost credit would still use the product if repayments were a third higher.
The research found that information on the total repayment amount is more helpful than an APR in understanding the cost of short-term credit. The evidence showed that some consumers do not always understand APRs and may sometimes use them incorrectly when making comparisons between very different products.
The research looked at the variety of policy approaches taken in other countries to address concerns about high-cost credit. International case studies examined by the OFT and Europe Economics (a research consultancy) showed that simple interest rate caps have been circumvented by firms increasing their fees and charges, whilst caps that also limit charges can be circumvented through restructuring the transactions or cross-border lending.
The OFT is inviting comments on the research in order to test the completeness and robustness of the evidence it has gathered. It expects to issue a final report next year setting out conclusions and recommendations.
NOTES
1. Read a summary of High-cost consumer credit - emerging evidence from the review (pdf 396kb).
The full report and annexes are available on the Review of high-cost consumer credit page.
2. The review of high-cost credit was launched on 2 July 2009 (see press release 78-09).
Review of high-cost consumer credit
In December 2009, the OFT published its emerging evidence and interim report on its review of high-cost credit in the UK. The review was launched on 2 July 2009 and followed a short informal consultation from 7 April 2009 on its scope.
The documents published include the following:
This emerging evidence and interim research report sets out the emerging evidence in the following areas:
In publishing this report we are keen to test the completeness and robustness of our emerging evidence and research. Consequently, we welcome submissions from interested parties concerning these published documents, including providing evidence relevant to the review. This will ensure that the findings and any recommendations that the OFT may make are based on evidence that is as robust as possible.
The deadline for receiving submissions is Friday, 8 January 2010. If any stakeholders envisage significant problems with this deadline, please contact the review team at the earliest opportunity.
The final report is to be published in spring 2010 and it will contain further research undertaken, the results of our analysis and our recommendations.
140/09 8 December 2009
The OFT has today published a summary of research and emerging evidence from its high-cost credit review.
The summary includes the results of a consumer survey, initial results from behavioural economics research, a review of international policy approaches to high cost credit, and evidence on the impact of the recession on competition in the market.
The research showed that the majority of consumers understand what types of credit are 'high-cost', but a significant number - over a quarter for some products - said they were fairly or very dependent on high-cost credit in their day-to-day life. Consumers using high-cost credit said that the speed at which money could be accessed was the main reason they took out these loans.
There was limited evidence to show that those who access high-cost credit shop around for better offers or different products. Around one-third of consumers using high-cost credit would still use the product if repayments were a third higher.
The research found that information on the total repayment amount is more helpful than an APR in understanding the cost of short-term credit. The evidence showed that some consumers do not always understand APRs and may sometimes use them incorrectly when making comparisons between very different products.
The research looked at the variety of policy approaches taken in other countries to address concerns about high-cost credit. International case studies examined by the OFT and Europe Economics (a research consultancy) showed that simple interest rate caps have been circumvented by firms increasing their fees and charges, whilst caps that also limit charges can be circumvented through restructuring the transactions or cross-border lending.
The OFT is inviting comments on the research in order to test the completeness and robustness of the evidence it has gathered. It expects to issue a final report next year setting out conclusions and recommendations.
NOTES
1. Read a summary of High-cost consumer credit - emerging evidence from the review (pdf 396kb).
The full report and annexes are available on the Review of high-cost consumer credit page.
2. The review of high-cost credit was launched on 2 July 2009 (see press release 78-09).
Review of high-cost consumer credit
In December 2009, the OFT published its emerging evidence and interim report on its review of high-cost credit in the UK. The review was launched on 2 July 2009 and followed a short informal consultation from 7 April 2009 on its scope.
The documents published include the following:
- summary of High-cost consumer credit - emerging evidence from the review (pdf 396kb)
- an interim research report (pdf 820kb)
- four annexes of additional research material:
Annexe A: A survey of consumers of unsecured and high-cost credit - A factual report prepared for the OFT by Ipsos MORI (pdf 937kb)
Annexe B: International research case studies on Germany, Ireland and the United States of America - A report for the OFT by Europe Economics (pdf 797kb)
Annexe C: OFT International case studies - Australia and Canada (pdf 728kb)
Annexe D: The UK legal framework and significant stakeholders for consumer credit (pdf 516kb)
This emerging evidence and interim research report sets out the emerging evidence in the following areas:
- an overview of consumer credit products, including those that have been the focus of our research
- preliminary results from our survey of consumers
- the effects of the recession on consumers and suppliers, and
- evidence from our international research on credit markets in Australia, Canada, Ireland, Germany and the USA (specifically Pennsylvania, Michigan and Wisconsin).
In publishing this report we are keen to test the completeness and robustness of our emerging evidence and research. Consequently, we welcome submissions from interested parties concerning these published documents, including providing evidence relevant to the review. This will ensure that the findings and any recommendations that the OFT may make are based on evidence that is as robust as possible.
The deadline for receiving submissions is Friday, 8 January 2010. If any stakeholders envisage significant problems with this deadline, please contact the review team at the earliest opportunity.
The final report is to be published in spring 2010 and it will contain further research undertaken, the results of our analysis and our recommendations.
- 1. What is the purpose of the interim research report?
- 2. Where should stakeholders send their comments or any additional information or evidence they might have?
- 3. When will you publish the final report?
- 4. How will a change of Government affect your report?
- 5. What is the emerging evidence in this report?
- 6. What additional information will the final report contain?
- 7. Will the OFT be making recommendations similar to those of the FSA on mortgages?
- 8. Is the OFT going to recommend interest rate caps?
- 9. Will the OFT address the high profits earned in the sector
Comment