The Office of Fair Trading has launched a review into the supply of high cost credit.
This move comes as part of its ongoing Financial Services Strategy.
The OFT estimates that the size of the high cost credit sector is up to £35 billion annually. The sector is characterised by loans which are often for small amounts, repayable over short periods, and with high APRs. Many of the customers of products in the sector have limited access to credit and are on low incomes and represent a vulnerable consumer group.
The review will focus on the level and nature of competition in the sector, including the impact of the economic downturn on competition and whether suppliers compete vigorously in a way which delivers benefits to consumers.
It will also concentrate on the business models of lenders within the sector, the behaviour and decisions made by consumers when purchasing credit and whether consumers have the appropriate level of protection and are given the information they need to make well-judged decisions.
The review will draw on information from the credit industry, consumer organisations, other parts of government and independent experts. It will also examine credit and lending practices in other countries. The OFT expects to publish interim findings by the end of 2009 and the final report in spring 2010.
The Department for Business, Innovation and Skills (BIS) has today published a Consumer White Paper, which sets out its approach to personal finance, empowering consumers through better enforcement, and modernising consumer law. The OFT has worked closely with BIS to ensure that this review complements the White Paper proposals and has therefore focused its work specifically on high cost credit, an area in which the OFT considers consumers to be vulnerable and where a review can add most value.
John Fingleton, OFT chief executive, said: "Low income consumers struggle to access credit and frequently have to resort to expensive, high interest options, and this has increasingly been an issue during the economic downturn."
These consumers are vulnerable to exploitation. This study will look at the way this sector works to examine whether they get a fair deal, and whether outcomes in the market might be improved."