The United States has seen its share of payday loan rate cap legislation in recent years. But such is not the case for all countries that offer consumers the convenience of easy loans and other forms of payday lending under the free market banner. The Guardian newspaper reports the UK’s Office of Fair Trading (OFT) has found that an interest rate cap on private money lenders is unnecessary, claiming that a lack of competition would harm that sector of the financial marketplace.
Source for this article: UK Office of Fair Trading says no to pay day loans rate cap
'Reasonably well’ is the functional level of UK payday loans competition
Credit-constrained consumers should ideally have access to the forms of short-term credit which they can obtain. The OFT sees this openness as allowing competition to dictate price in the free market. The OFT claims that the current pay day loans competitive market regulates itself “reasonably well,” although improvements could be made that don’t involve a rate cap. The OFT has moved forward with their pro-payday loan freedom stance, despite heavy resistance from the Archbishop of Canterbury and a variety of other special interest charity groups. However, the OFT did recommend further investigation into how an industry-wide “code of practice” might be instituted for the UK pay day loans industry.
OFT move sits well with Finance and Lending Association
The association’s Head of Consumer Finance, Fiona Hoyle, assured The Guardian that any form of payday loans no faxing rate control “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 within the recent U.S. Dartmouth University Study on their associated detriments; leave them be and consumers can benefit while payday loan outlets can garner reasonable profits.
A payday loan squeeze simply presents a lot more problems
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. 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/
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