Paydayloans laws – specifically capping rates – is nothing new to American political theater. However, not all countries that allow loan company to serve consumers in need of easy loans are so eager to institute a rate cap that could stifle the natural price controls present within a free market economy. The Guardian newspaper reports that 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 payday loans no fax rate cap
Payday loan system functioning ‘reasonably well’
Credit-constrained consumers should ideally have access to the varieties of short-term credit which they can obtain. The OFT sees this openness as allowing competition to dictate price within the free market. 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 payday loan lenders markets work “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. 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
Fiona Hoyle, Head of Consumer Finance for the Finance and Lending Association, told The Guardian that a pay day loan 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 loans outlets can garner reasonable profits.
Don’t 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. It may be the perfect, but the UK payday loan industry nevertheless has some road to travel before arriving at that goal. Banks and credit unions have failed to mount serious competition within the short-term consumer lending market in America, but the OFT believes that finding a way to level the field by introducing them successfully to the UK market will be of great benefit to the consumer.
More info on this topic
http://www.guardian.co.uk/money/2010/jun/15/doorstep-lenders-interest-rate-cap/
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