Friend or foe: Borrowing money at the door

Money is short and school uniforms are needed for the new term, or there are Christmas wishes are to be fulfilled.

At the door is a friendly face, often a neighbour, offering an expensive but convenient and immediate cash loan. The deal is done and the relationship between customer and agent begins.

"We would come to know everything about them," says one agent. "By the second month, we would know what colour clothes they wore on a Friday."

"They could call us and we would go and do a loan. Our customers would come to rely on it. But we would also keep them on the straight and narrow."

Whatever the moral viewpoint of this model it was undoubtedly a very successful one for Provident Financial, the 137-year-old door-to-door lender that says it has delivered a profit every year since listing on the UK stock market in 1962.

But then the Bradford-based company replaced these self-employed agents by hiring "customer experience managers". Clients jumped ship, profit warnings were issued, the company's share price plummeted, and its chief executive resigned.

The reasons for this business decision are complex, with regulation and accountability part of the equation. Yet, back on the doorstep, those in financial strife remain. So who are these millions of customers, what will they do, and is the door-to-door lending model damaged?

Most of the self-employed agents were women as, they say, were their customers. There were single mums, tenants and people living on the breadline, but there were also professionals such as teachers and builders who may have had credit issues in the past which blocked them from the mainstream market.

Their loans have been relatively expensive. Somebody borrowing £200, and paying it back over 26 weeks, would generally pay interest of more than £100.

Former agents - many of whom are angry at the way they were moved out by the company - say that the personal touch, as much as the convenience, was the key selling point for these doorstep loans.

"Somebody is coming to the door. A few of my customers didn't see anybody, so they liked the wee interaction," former agent Daniel Miskelly told BBC Radio 5 Live.

Two ex-agents, who wished to remain anonymous, say that on the odd occasion, understanding the sensitivity of borrowing, this personal touch extended to picking up repayments in secret from a rubbish bin. It also meant they could talk some customers out of loans they thought might get them into financial trouble.

They still receive calls from their old customers. There were "cuddles and tears" when they stopped working for Provident. The company has "taken the personal" out of Provident, they say.

Even though it may have been a positive for the company, those personal relationships may have actually been a weakness for many customers, according to debt charities.

StepChange says that customers struggling with repayments may feel more of an obligation to keep repaying doorstep loans, owing to that personal relationship, when they should instead be concentrating on repaying priority debts such as rent, or council tax.

Rolled over loans tend to lock people into long-term debt, it adds, and many of those who sought help from the charity also had other forms of high-cost credit.

For example, 54% of the charity's clients who had doorstep loans also owed an average £2,681 in total on more than two credit cards.

Another charity - Citizens Advice - says that some doorstep loan customers might not get such a friendly service from providers in general.

"Although some customers like the personalised experience of a doorstep loan, where a lending agent visits their house each week to collect a repayment, for other customers it can cause big problems," it says.

"Citizens Advice has seen many cases where lending agents use high-pressure sales tactics, carry out inadequate affordability checks to issue a loan, and use aggressive practices to collect repayments."

One borrower, who did not want to be named, says she was sold a loan while suffering from depression. Although the agent was "pleasant", she says, she never really wanted anyone to come to the door.

"That loan should never have been made. They put the money in front of me," she says.

Eventually the debt was written off.

Mick McAteer, founder of the Financial Inclusion Centre, says that the temptation provided by high-cost lenders as a whole has caused wider financial difficulties.

"These lenders made it incredibly easy to borrow money. It is quick to borrow money, whereas it takes time and effort to save and years to see the benefits," he says.

"[High-cost credit customers] see money in their hand very quickly. It is immediate gratification."

He says that the strict regulation of the payday lending industry had been one of the most effective developments of recent years, creating a gap in the market which he hopes will be filled by credit unions.

There is little evidence of that so far, nor do these not-for-profit credit unions appear to have filled the gap left by Provident Financial's woes.

Earlier this week, Provident's major competitor, Morses Club, said its loan book had increased by 12% in the six months to the end of August, and that the number of customers had also grown by 12% to 233,000. It has hired a number of Provident's old agents.

Its chief executive, Paul Smith, said the firm had "capitalised on market conditions" but that its growth had been "accelerated by Provident's current position, rather than caused by its position".

It will take much longer to know whether the customers themselves are able to capitalise too.

You can hear more about doorstep lending on Money Box on BBC Radio 4 at 12:00 BST on Saturday 2 September, and again at 21:00 on Sunday 3 September