James Moore: Regulators and politicians not ready to be courageous and set interest rate cap

Outlook There is a simple solution to the problem of payday lenders – one that has been highlighted again by Citizens Advice, whose admirable service is being swamped by the industry's victims: an interest rate cap, such as one that already exists in the Irish Republic.

And yet, despite fresh scandals emerging at an alarming rate, there is a strange reluctance to embrace this solution.

Partly this is because academic research on the impact of such a measure has been equivocal, as academic research usually is. Partly it is because imposing a cap would be a courageous step to take; as the Civil Service well knows, the best way to divert a politician from a policy you don't much like is to describe it as courageous.

One of the standard arguments deployed by opponents of the measure is that it may restrict supply of a service that, while it might be unpalatable, can sometimes be needed – particularly by people who find themselves in short-term need. One example is the self-employed, who often face cash flow problems; another is those with limited means who suddenly get hit with unexpected bills.

The fear is that if you crack down on organisations which are legal, if not legitimate, you leave the field clear to those which operate outside the law and show few scruples in the way they collect outstanding monies.

But then the tactics employed by some of the businesses which are legal – threats, harassment, bullying – are little different from those that are not. Which explains why Citizens Advice is doing such brisk business.

And, anyway, restricting the size of this market may not be such a bad thing. The wall-to-wall advertising indulged in by the likes of market leader Wonga and, more recently, Cash Lady, is arguably creating a market where one didn't previously exist. These organisations compete not so much on price but on the speed and ease of access to funds they offer to their clientele. The evidence suggests that it has simply become too easy to get your hands on this sort of credit and, as the Office of Fair Trading has found, once a payday lender has its hooks into a client, the likelihood is they will stay there. Up to 50 per cent of payday lenders' business comes from customers rolling over their loans.

Therefore, an interest rate cap which makes the market less attractive for operators might be a very good thing for the very reason that critics argue against it: it could reduce the supply as well as the price of this sort of credit.

The problem is that even though the Financial Conduct Authority has been given the power to act in this area, it won't get it until next year – and even then it will have to put it out to consultation. If the watchdog favours a cap, and regulators are no fonder of taking courageous decisions than politicians are, it won't be able to impose one any time soon.

In the interim, the OFT will almost certainly formally refer the market to the Competition Commission (it's said it's minded to), which will then have to conduct its own investigations before making recommendations.

To its credit, the OFT has at least used the powers it has to strip the really awful, as opposed to the common or garden awful, of their credit licences. But that amounts to, at best, treating the symptom rather than the underlying cause of infection.

For now, the parade of misery knocking on the doors of Citizens Advice Bureaux up and down the country will continue. If it hoped its intervention would push things forward, it's likely to be disappointed.

News
scienceExcitement from alien hunters at 'evidence' of extraterrestrial life
Life and Style
Customers can get their caffeine fix on the move
food + drink
News
newsRyan Crighton goes in search of the capo dei capi
Extras
indybest

PROMOTED VIDEO
Arts and Entertainment
Actors front row from left, Jared Leto, Jennifer Lawrence, Meryl Streep, Ellen DeGeneres, Bradley Cooper, Peter Nyongío Jr., and, second row, from left, Channing Tatum, Julia Roberts, Kevin Spacey, Brad Pitt, Lupita Nyongío and Angelina Jolie as they pose for a
film
Sport
sport
Life and Style
techCould new invention save millions in healthcare bills?
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Voices
A meteor streaks across the sky during the Perseid Meteor Shower at a wind farm near Bogdanci, south of Skopje, Macedonia, in the early hours of 13 August
voicesHagel and Dempsey were pure Hollywood. They only needed Tom Cruise, says Robert Fisk
News
peopleEnglishman managed quintessential Hollywood restaurant Chasen's
Life and Style
food + drinkHarrods launches gourmet food qualification for staff
Arts and Entertainment
Michael Flatley prepares to bid farewell to the West End stage
danceMichael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
Horst P Horst mid-fashion shoot in New York, 1949
fashionFar-reaching retrospective to celebrate Horst P Horst's six decades of creativity
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
i100
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Life and Style
news

As Voltaire once said, “Ice cream is exquisite. What a pity it isn’t illegal”

Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Service Desk Analyst- Desktop Support, Helpdesk, ITIL

£20000 - £27000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...

Service Desk Analyst - (Active Directory, Support, London)

£25000 - £35000 per annum: Harrington Starr: Service Desk Analyst - (Active Di...

Junior Quant Analyst - C++, Boost, Data Mining

£30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

Junior Quant Analyst (Machine Learning, SQL, VBA)

£30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst (Machine Lea...

Day In a Page

All this talk of an ‘apocalyptic’ threat is simply childish

Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
Mafia Dons: is the Camorra in control of the Granite City?

Mafia Dons: is the Camorra in control of the Granite City?

So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Once the poor relation, the awards show now has the top stars and boasts the best drama
What happens to African migrants once they land in Italy during the summer?

What happens to migrants once they land in Italy?

Memphis Barker follows their trail through southern Europe
French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
Frank Mugisha: Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked

Frank Mugisha: 'Coming out was a gradual process '

Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked
Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

Radio 1’s new top ten

The ‘vloggers’ signed up to find twentysomething audience
David Abraham: Big ideas for the small screen

David Abraham: Big ideas for the small screen

A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
Florence Knight's perfect picnic: Make the most of summer's last Bank Holiday weekend

Florence Knight's perfect picnic

Polpetto's head chef shares her favourite recipes from Iced Earl Grey tea to baked peaches, mascarpone & brown sugar meringues...
Horst P Horst: The fashion photography genius who inspired Madonna comes to the V&A

Horst P Horst comes to the V&A

The London's museum has delved into its archives to stage a far-reaching retrospective celebrating the photographer's six decades of creativity
Mark Hix recipes: Try our chef's summery soups for a real seasonal refresher

Mark Hix's summery soups

Soup isn’t just about comforting broths and steaming hot bowls...
Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'

Tim Sherwood column

I would have taken the Crystal Palace job if I’d been offered it soon after my interview... but the whole process dragged on so I had to pull out
Eden Hazard: Young, gifted... not yet perfect

Eden Hazard: Young, gifted... not yet perfect

Eden Hazard admits he is still below the level of Ronaldo and Messi but, after a breakthrough season, is ready to thrill Chelsea’s fans
Tim Howard: I’m an old dog. I don’t get too excited

Tim Howard: I’m an old dog. I don’t get too excited

The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

Tom Peck on Match of the Day at 50

The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition