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. The OFT recognizes that market competition has helped regulate pay day prices. The level of competition between easy loans outlets may not be as effective as it might be, but the OFT is confident in their assessment that loan lenders markets work “reasonably well”. This manner of thinking has not been proven popular with the Archbishop of Canterbury, Financial Inclusion Centre and charity group Debt On Our Doorstep, but the OFT has trudged on. Within the interests of balance, the OFT did suggest the UK payday loan industry would most certainly benefit from a uniform code of conduct to bring violating stragglers into line.
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 rate cap “would have adverse unintended consequences for consumers, including for the cost and availability of credit”. Hoyle sees it as advisable that governments follow the OFT’s lead on rate caps, borrowing some of the logic shown in the recent U.S. Dartmouth University Study on their associated detriments; leave them be and consumers can benefit when pay day outlets can garner reasonable profits.
A payday loan squeeze simply presents a lot more issues
Marie Burton, financial services specialist at the consumer group Consumer Focus – which operates independently from the payday lender industry – told The Guardian that the OFT has exposed just how hard it is to both promote competition and help drive down consumer cost. It may be the perfect, but the UK payday loan industry still has some road to travel before arriving at that goal. Pulling banks and credit unions into competition by encouraging them to offer low-cost, low-hassle payday loan products would be most ideal for the free market, although banks and credit unions have failed at this before, considering America’s example.
Sources
http://www.guardian.co.uk/money/2010/jun/15/doorstep-lenders-interest-rate-cap/
