David Prosser: The dangers of a cap on interest rates
Wednesday 16 June 2010
Outlook The Office of Fair Trading's decision not to impose a maximum interest rate on lenders such as pawnbrokers, payday loan providers and other high-cost lenders is a sensible case of the head ruling the heart.
Some of the headline rates charged by these lenders do look exorbitant and a cap must have been a tempting way to tackle the racket. But the result would have been more people being denied credit from companies that are at least within the orbit of the regulatory authorities. Many of them would have ended up going to illegal loan sharks instead, where high interest rates are often the least of their worries.
There is no doubt that some of the lenders operating in this sector are profiteering. But rates are high for a reason: the people to whom they lend do not have credit ratings that enable them to borrow from more affordable sources. The price of the loan reflects the enhanced risk of a default.
It's not just that borrowers would have nowhere else to turn without these lenders. Often, taking out these loans, and then making repayments on schedule, is their first step towards building the sort of credit history that gives them access to mainstream sources of finance in the future.
Better advice for the financially excluded is important and lenders should be policed carefully to ensure they are not exploiting their customers. But the OFT is right not to pretend this industry does not serve a need.
- 1 The BBC has just done more to eradicate ‘terrorism’ than all our wars since 9/11
- 3 Mystery man who gave mum heart-warming note on train 'wanted to put a smile on her face'
King Salman: Just five days in, Saudi Arabia's new king has already overseen a beheading
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Mystery man who gave mum heart-warming note on train 'wanted to put a smile on her face'
Michelle Obama highlights harsh restrictions faced by Saudi women after meeting King Salman without wearing a headscarf
Chilling drone footage captures Auschwitz ahead of 70th anniversary of liberation
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...
£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...