Payday loan rate cap laws have circulated in various forms through the halls of state-level politics within the U.S. for years. Yet not all nations are so quick to cap the payday loan; they allow the wheels of the free market economy to dictate price. According to UK newspaper The Guardian, the Office of Fair Trading (OFT) in the United Kingdom has ruled that a payday loan rate cap is not needed and would ultimately harm competition – and hence prices.


Source for this article: UK Office of Fair Trading says no to payday loan rate cap.


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



Access to easy cash loans and other varieties of consumer credit that fall under the general payday loan banner is important for credit-constrained consumers. The OFT recognizes that market competition has helped regulate paydayloans prices. The OFT claims that the current payday loan competitive market regulates itself "reasonably well," although improvements might be made that do not involve a rate cap. 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. The OFT did recommend the uncapped UK pay day 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 approves of OFT stance



A paydayloans rate of interest 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. 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 while payday loan outlets can garner reasonable profits.


Do not just throw the payday loan to 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. While that is the perfect, additional research into 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 maybe greater effort within the UK market will strike that ideal balance of consumer savings and business profit.


Citations


http://www.guardian.co.uk/money/2010/jun/15/doorstep-lenders-interest-rate-cap/