Doorstep lending is back in the spotlight after
recession-beating profits from the main market player drew anger and accusations of “extortionate” charges.

Provident Financial was described as “probably the most
profitable bank in the world” by one analyst following news of a hike in half-year profits to £53.1 million.

But the figures were met with fury from children’s charity Barnardo’s, which claimed the lender was ripping off those most in need with interest rates up to an eye-watering 545 per cent annual
percentage rate.

The startling APRs in the industry, coupled with Provident’s results, highlight how potentially lucrative the niche market of home consumer credit can be, while also reigniting the debate
over how to give low-income families access to affordable finance.

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So-called “sub-prime” borrowers – non-standard customers and those with poor credit histories – have found it even more difficult to get loans amid the credit crunch as banks clamped down on
lending.

This has been good news for firms such as Provident Financial, which has been turning customers away due to demand for home credit loans and credit cards.

The group saw customer numbers rise to more than two million in the six months to June 30, having already soared by 10 per cent in the previous year.

While it also offers credit cards through the Vanquis Bank brand, it is the firm’s consumer credit division that contributes by far the most towards profits – making £52 million alone in the
half-year period.

Provident is the biggest player in the sector, but it is one of only a small number that offer home credit nationally and it is this lack of competition that is causing concern.

The industry is already due to come under scrutiny in an Office of Fair Trading review, launched just weeks ago to look at competition in the high-cost credit market and whether consumers have
enough information and protection when taking out short-term debt.

The report – the second by watchdogs in the past five years – is due back from the OFT next spring.

But Barnardo’s wants urgent new regulations to protect consumers and for banks to make it easier for individuals on low incomes and in deprived areas to get access to loans.

It called for an inquiry into home credit industry practices as it said these lenders were plunging poor families into “worrying levels of debt”.

Provident operates a network of 11,500 agents to manage its door-to-door loans business, the cost of which is factored into its interest rate charges.

It aims to recruit agents, often women, from the same local communities as target borrowers, many of whom are also women and have been turned away from mainstream lenders, according to Provident.

Peter Crook, chief executive of Provident Financial, said typical doorstep borrowers are mothers who need a few hundred pounds to pay for repairs and replacements for essential household items, or for children’s clothing.

“We very much help to improve customer standards of living – we help bridge the gap between incomings and outgoings,” he said. “They’d have to go without otherwise or go to an illegal lender.”

The Consumer Credit Counselling Service, which provides free advice to those in financial difficulty, said it agreed doorstep lending offered a vital credit line to those unable to secure loans
elsewhere.

It also confirmed that doorstep borrowers tend to be happy with the service, despite the three-digit rates charged by providers.

However, the recession has put the industry back in sharp focus, as rising unemployment and the credit crunch has left many turning to sub-prime lenders such as Provident.

The lack of competition is seen as an ongoing concern, with recent financial conditions whittling down the number in the market even further.

Credit unions – co-operative financial institutions that are owned and controlled by its members – are a valid source of finance to non-standard borrowers. Yet these tend to be linked to the workplace
through trade unions, which again limits access.

Rather than shutting off another source of finance, many believe it is now down to the Government to help offer a source of credit or “people’s bank” that may avoid the need to borrow on the
doorstep in the first place.