Tweet
Ed. Milliband said at the conference "We will cap the cost of payday loans, and work to provide people on low incomes with alternative sources of affordable credit."
So here's an impact report on doing such - '' The impact on business and consumers of a cap on the total cost of credit - March 2013 - Bristol Uni'
14.6.7
Concluding comments
In theory, a cap on the total cost of credit would reduce the cost of short‐term borrowing. The available evidence about the impact of price restrictions on the cost that consumers pay for credit relates to interest rate restrictions, however, not the total charge for credit. The evidence reviewed for this research does not show unequivocally that price restrictions (in the form of interest rate restrictions) reduce the cost of borrowing to consumers, particularly those on low incomes. There is no evidence about the proportion of customers who pay less for short‐term credit after interest rate restrictions are introduced than they did before.
If price restrictions were introduced in the UK, the evidence points strongly to a reduction in access to short‐term credit. Views will vary on whether this is a positive or negative outcome. Regardless, the large number of customers who use short‐term loans to meet essential expenditure underlines the need for any reduction in access to credit arising from intervention to be offset in other ways, for example through credit union expansion or by increased welfare benefits and wages. Even in the absence of price restrictions, these measures could benefit short‐term credit users.
It seems unlikely that a price cap, however constructed, would directly address many of the other issues experienced by people who use short‐term credit. Other potential changes that might help improve outcomes for consumers who use short‐term credit include the development of better data sharing systems (particularly for payday loans), and implementation of the Good Practice Customer Charter for payday and other short‐term credit. They also include potential limits on the amount that can be applied in default charges or restrictions on the number of times a loan can be extended. While these measures may address some of the consumer detriments identified in this research, they are not directly aimed at reducing the headline cost of short‐term credit.
So here's an impact report on doing such - '' The impact on business and consumers of a cap on the total cost of credit - March 2013 - Bristol Uni'
14.6.7
Concluding comments
In theory, a cap on the total cost of credit would reduce the cost of short‐term borrowing. The available evidence about the impact of price restrictions on the cost that consumers pay for credit relates to interest rate restrictions, however, not the total charge for credit. The evidence reviewed for this research does not show unequivocally that price restrictions (in the form of interest rate restrictions) reduce the cost of borrowing to consumers, particularly those on low incomes. There is no evidence about the proportion of customers who pay less for short‐term credit after interest rate restrictions are introduced than they did before.
If price restrictions were introduced in the UK, the evidence points strongly to a reduction in access to short‐term credit. Views will vary on whether this is a positive or negative outcome. Regardless, the large number of customers who use short‐term loans to meet essential expenditure underlines the need for any reduction in access to credit arising from intervention to be offset in other ways, for example through credit union expansion or by increased welfare benefits and wages. Even in the absence of price restrictions, these measures could benefit short‐term credit users.
It seems unlikely that a price cap, however constructed, would directly address many of the other issues experienced by people who use short‐term credit. Other potential changes that might help improve outcomes for consumers who use short‐term credit include the development of better data sharing systems (particularly for payday loans), and implementation of the Good Practice Customer Charter for payday and other short‐term credit. They also include potential limits on the amount that can be applied in default charges or restrictions on the number of times a loan can be extended. While these measures may address some of the consumer detriments identified in this research, they are not directly aimed at reducing the headline cost of short‐term credit.
Comment