Price cap for payday loans
In an unexpected and dramatic change of policy, the government has decided that a price cap should be introduced for payday loans. In announcing this move, chancellor of the Exchequer George Osborne said: ‘We have created a powerful new consumer regulator to regulate the payday lending industry and now we’re asking them to set a cap on the cost of credit. That will make sure that hardworking people are served by the banking system. It is a far change from the situation we inherited, where the industry was almost entirely unregulated.’
Setting aside the obvious faux pas in this statement, insofar as the payday industry, like the wider credit industry as a whole, has always been subject to detailed regulation under the Consumer Credit Act 1974, the imposition of a price cap has been considered and discounted on a number of previous occasions. It was assessed by the previous government at the time of the passage of the Consumer Credit Act 2006 and by the current regulator of consumer credit, the Office of Fair Trading, in its High Cost Credit report published in 2010. It was considered again in a report by the University of Bristol that was commissioned by the present government and by the Financial Conduct Authority (FCA) as part of its proposals for regulation of consumer credit going forward. All of these in-depth reviews of the issues involved came to the conclusion that a price cap was not a suitable tool for the high-cost market. Fundamental concerns about the impact of a cap on access to credit for lower-income consumers and the difficulty in setting a cap at a level that reduced the cost paid by consumers underpinned this conclusion…
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