The Competition Commission and payday lending — the cure may be worse than the perceived problem

The rock band Bad Company once said: ‘You never give me my money. You only give me your sympathy.’ Is this the future for consumers of payday loans? Well it could well be if the Competition Commission enquiry leads to a restriction of access to consumer credit for those customers.

In 2010, the Office of Fair Trading (OFT) issued its final report of an extensive and evidence-rich review of high-cost credit. The major finding of that report was that consumers who used high-cost products — including payday loans — had limited options when seeking credit. Mainstream lenders would not provide them with the small loans they required. Thus, absent of any new entry to the high-cost sector, the consumers could only access loans from those who would supply them. The report also found that, generally, standards of customer care in the sector were good. The problems identified were lack of reasoned decision making by consumers and lack of competition between suppliers. The need for these consumers to have access to credit was a clear finding of the OFT.

Now, just four years later, that report seems to have become a forgotten document and we face a Competition Commission enquiry…

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