Payday loan laws – specifically capping rates – is nothing new to American political theater. Yet not all nations are so quick to cap the payday loan; they allow the wheels of the free market economy to dictate price. The Guardian newspaper reports the UK’s Office of Fair Trading (OFT) has found that an interest rate cap on payday loan companies is unnecessary, claiming that a lack of competition would harm that sector of the financial marketplace.
Article Source: UK Office of Fair Trading says no to pay day loans rate cap
'Reasonably well’ is the functional level of UK pay day competition
Access to easy payday loans and other forms of consumer credit that fall under the general payday loan banner is very important for credit-constrained consumers. Determining the price the market will bear is what becomes of such openness, says the OFT. While the OFT admits that improvements can be made to the way the current payday loans market works, it nevertheless functions “reasonably well”. Despite resistance from the Archbishop of Canterbury, the Financial Inclusion Centre and the debt charity coalition Debt On Our Doorstep, the OFT concluded that the payday loan store market did not need a a lot more stringent rate cap. The OFT did recommend that the uncapped UK pay day loan industry could use a uniform set of rules to help protect consumers from the minority of lenders whose practices may border on predatory.
Finance and Lending Association nods in approval of OFT move
Fiona Hoyle, Head of Consumer Finance for the Finance and Lending Association, told The Guardian that a pay day loans rate cap “would have adverse unintended consequences for consumers, including for the cost and availability of credit”. If governments follow the Office of Fair Trading’s lead regarding rate caps – and take note of the Dartmouth University study in the U.S. on the effects of payday loans no fax rate caps in Washington and Oregon State – possibly they’ll see just how maintaining competition can aid the consumer when nevertheless allowing easy loans outlets to reasonably profit.
A payday loan squeeze simply presents more issues
Marie Burton, financial services specialist at the consumer group Consumer Focus – which operates independently from the personal loan companies industry – told The Guardian the OFT has exposed just how hard it is to both promote competition and help drive down consumer cost. While that is the perfect, additional research to the workings of the short-term consumer finance industry in the UK may be necessary. Banks and credit unions have failed at the payday loan game in American, but possibly greater effort in the UK market will strike that ideal balance of consumer savings and business profit.
More details on this topic
http://www.guardian.co.uk/money/2010/jun/15/doorstep-lenders-interest-rate-cap/
