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TSB Blows The Lid Off The Broken Loans Market

18th April 2017


Underhand tactics by the personal loans industry are costing consumers as much as £400 million every year
TSB Bank is today lifting the lid on the UK’s broken personal loans market as it reveals the underhand tactics which are costing Brits as much as £400 million each year1. TSB was amazed to discover:
  • Consumers are being punished for shopping around – with providers making a hard mark on their credit file just for asking for a loan price or quote.
  • Many providers hide important product features from consumers – which could save, or cost them money.
  • Customers feel trapped with their loan provider – because they are prevented from switching to get a better deal.

So why does this matter?

Nearly one in 10 people in the UK are thought to have a personal loan2 and these underhand tactics are costing them as much as £400 million each year. TSB’s investigation3 reveals:
  • Nearly two-thirds (61%) of providers perform unnecessary hard credit checks when a consumer looking for a personal loan just asks for a price or rate.
  • Almost 80% of people say personal loan fees and charges should be clearer.
  • Nearly seven in 10 (69%) people want switching their loan to get a better deal to be made simple and straightforward.

In its report, Consumers Matter, which is published today, TSB has identified three simple changes that will go a long way to making the loans market work for consumers:
Consumers must be able to shop around for a good deal – with loans providers never making a hard mark on a consumer’s credit file until they choose to actually purchase.
Providers must come clean on hidden product features upfront and be clear on how the loan works – to enable customers to find the right loan for their needs.
The industry must stop locking in customers and create a new switching service – to free customers who feel trapped with their current provider.

Paul Pester, Chief Executive Officer for TSB, says: “I was genuinely shocked and amazed to discover the underhand tactics employed by loans providers. So much so, we just had to blow the lid off this broken market.
For any market to operate well, consumers have to be able to shop around, understand what they’re buying and be able to switch providers easily. What other industry penalises you just for shopping around to try and get a better deal?
If you take the time to shop around for a new car it normally pays off and you get a better deal. But if you shop around for a loan to buy that car, you often end up worse off. Your credit rating is hit and it could end up costing you dearly in extra interest.
We estimate that consumers are losing out by as much as £400 million each year – £400 million which is going straight into the pockets of aggressive loans providers. Enough is enough: it’s time the industry comes clean on these costly underhand tactics.”

Research reveals the extent of the problem...

Nearly two thirds of loans providers (61%) perform unnecessary hard credit checks before giving customers a personalised quote and a shocking 40% of consumers have no idea that there is a black mark on their credit history.
But punishing consumers for shopping around isn’t the only underhand tactic used by the industry. Key product features which can impact how much a customer ends up paying for a loan are often hidden.

TSB is calling for change and consumers agree...

  • 78% of people want personal loans providers to be more open about fees and charges.
  • 65% want lenders to be clearer about how long it will take to receive funds.
  • While 61% are calling for providers to be more transparent about the number of applicants who receive the advertised interest rate for a loan.

On top of this, many customers say they feel trapped and unable to switch to a better deal because there is no easy way of switching. Nearly seven in 10 (69%) of people believe this should change.
TSB’s Consumers Matter report can be viewed in full here.


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Notes to editors


1 TSB analysis. TSB has calculated the cost of market behaviours on consumers based on the impact of both multiple credit searches and / or a failure to shop around on the level of interest a customer receives. First, in the event that a customer is shopping around and gets multiple credit searches, the credit footprints incurred could increase the loan APR that a customer is offered by around 1.75%. This equates to an extra £364 in interest paid over the life of the loan on an average loan (£10,000 over four years). This could impact nearly one million customers a year, meaning £344m of extra interest charged to customers each year. Second, in the event a customer does not shop around or gets a worse deal as a result of multiple hard credit searches on their account the likely fall back is taking out a loan with their main bank account provider. These customers pay an average of 2% higher APRs on loans with the big banks rather than market leaders. On an average loan (£10,000 over four years) that equates to £418 more interest. We calculate that almost one million customers each year fail to shop around, meaning that consumers are being charged an extra £397m in interest each year as a result.
2 YouGov, Mainstream Lending. Products. March 2014.
3 YouGov, survey conducted for TSB – poll of 1,011 people that have taken out a unsecured personal loan in the past five years. Jan-Feb 2017.