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The Office of Fair Trading (OFT) published a final report into the £7.5 billion high-cost credit sector yesterday, looking at pawn-shops, doorstep loans and payday loan providers. Find out what it means for finding loans online.
The OFT considered the case for price controls, such as capping the amount of interest lenders could charge, for pawnbroking, payday loans, home credit and rent-to-buy credit and concluded that these measures are impractical and unnecessary.
The report found that, in a number of respects, these markets work reasonably well in that they serve borrowers not catered for by mainstream suppliers, complaint levels are low, and there is evidence that for some products, lenders do not levy charges on customers who miss payments or make payments late.
As many as 67,000, or 7%, of those struggling with debts say they have already contacted a loan shark or doorstep lender, while a further 13% have considered doing so, according to research by insolvency trade body R3, who have identified a group of 961,000 individuals who describe themselves as ‘struggling with debt but have not sought help.'
Many businesses operating in the high lending arena welcomed the OFT decision. Ohad Hessel, Marketing Manager at payday loans broker Paydaybank.co.uk, believes that the sector regularly comes in for unfair criticism.
“There are no calls for regulation of car insurance companies who inflict high premiums on driver’s under-25 because they are a greater risk to insure, which is the equivalent of what lending to higher credit risk individuals with a payday loan equates to in the loans industry – the risk of default is higher,” he says. "Payday loans are a matter of consumer choice, and as complaints remain minimal, we do not see any need for regulation.” Fiona Hoyle, Head of Consumer Finance at the Finance & Leasing Association urged the Government to take note of the OFT report. “We agree with the OFT that price controls would not be appropriate because they would have adverse unintended consequences for consumers, including for the cost and availability of credit,” she said.
We hope that the Government will take careful note of these arguments against price capping when it considers the credit and store card markets.”
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