Some of the hire purchase debt of retailers is purchased by the finance houses under what is known as ‘block discounts’. The bulk of hire purchase business is accounted for by the members of the Finance House Association. About half the funds of the finance houses comes from interest-bearing deposits, not only from the general public, but from industrial and commercial companies and other financial institutions including commercial banks (the interest paid is generally higher than thatoffered by the commercial banks); other sources of funds are capital reserves, bills discounted and bank overdrafts.
The largest source of the finance houses’ funds is in fact the commercial banks, and most of the larger finance houses are subsidiaries of manufacturing companies and advance instalment credit only for their parent company’s products, e.g. Ford Motor Credit Co. Although advances for cars and other consumer durables represent a masjor proportion of their business, the Crowther Commitee found that 59 per cent of the outstanding balances of the finance houses were for business purposes and only 41 per cent for the end consumers. This is the result of the control which have been imposed by the government on hire purchase lending in the past. These controls have since been relaxed under the new system of credit control, whcih places similar restraints on hire purchase lending as upon other types of credit. Hire purchase is not the sole, although it is the main, activity of the finance houses; they also make loans for other purposes, including bridging finance, leasing and factoring, stocking loans for motor dealers and second mortgages.
Reference: The Penguin Business Dictionary, 3rd edt.