UK Office of Fair Trading says no to payday loan rate cap

America has seen its share of pay day 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 loan company under the free market banner. According to UK newspaper The Guardian, the Office of Fair Trading (OFT) in the United Kingdom has ruled that a pay day loan rate cap is not needed and would ultimately harm competition – and hence prices.

Article Source: UK Office of Fair Trading says no to pay day loan rate cap

'Reasonably well’ is the functional level of UK payday loan competition

Easy loans and other forms of payday loans credit are beneficial if credit-constrained persons can very easily access them. The OFT recognizes that market competition has helped regulate paydayloans prices. When the OFT admits that improvements can be made to the way the current paydayloans market works, it still functions “reasonably well”. 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. Within the interests of balance, the OFT did suggest the UK payday 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

A payday loans no fax interest rate cap “would have adverse unintended consequences for consumers, including for the cost and availability of credit,” said Finance and Lending Association Head of Consumer Finance Fiona Hoyle to The Guardian. Learning from the U.S. study from Dartmouth University that showed the follow of payday loan rate caps (as well as an additional recent U.S. study that showed that payday loan companies companies don’t reap unreasonable profit, Hoyle told The Guardian that she hopes parliament will learn from the OFT’s example.

Do not just throw the payday loan into the financial stocks

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 ideal, but the UK payday loan industry nevertheless 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/