America has seen its share of payday loan rate cap legislation in recent years. However, not all countries that allow loan company to serve consumers in need of easy payday loans are so eager to institute a rate cap that could stifle the natural price controls present within a free market economy. According to UK newspaper The Guardian, the Office of Fair Trading (OFT) within the United Kingdom has ruled that a payday loans rate cap is not needed and would ultimately harm competition – and hence prices.
Article Resource: UK Office of Fair Trading says no to payday loans rate cap
Payday loan competition not perfect, but works ‘reasonably well’
Access to easy loan and other styles of consumer credit that fall under the general pay day banner is important for credit-constrained consumers. The OFT recognizes that market competition has helped regulate payday loan prices. The level of competition between easy cash 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”. 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 lender market did not need a a lot more stringent rate cap. In the interests of balance, the OFT did suggest that the UK pay day loans industry would most certainly benefit from a uniform code of conduct to bring violating stragglers into line.
Finance and Lending Association approves of OFT stance
The association’s Head of Consumer Finance, Fiona Hoyle, assured The Guardian that any form of paydayloans rate control “would have adverse unintended consequences for consumers, including for the cost and availability of credit”. Learning from the U.S. study from Dartmouth University that showed the follow of payday loan rate caps (as well as one more recent U.S. study that showed that payday loan company companies do not reap unreasonable profit, Hoyle told The Guardian that she hopes parliament will learn from the OFT’s example.
A severe crack down solves nothing
The Guardian found that Marie Burton of the group Consumer Focus agrees that healthy competition and low prices aren’t always an easy balance to achieve. Achieving that ideal balance is a goal set before the UK payday loan industry. 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.
Citations
http://www.guardian.co.uk/money/2010/jun/15/doorstep-lenders-interest-rate-cap/
