Payday loan lenders compared...

There was speculation that the Office of Fair Trading, which regulates payday loans and other forms of short-term credit, would move to cap interest rates to protect consumers. However, a 12-month insight into the workings of creditors that concluded in June found that the market as a whole worked to a ‘reasonably well’.

So – even though interest rates are going to remain something which is set at the lender’s discretion, what are some of the other things which are subject to change in the immediate future that could affect you and your pocket? This article will begin to find out more for you.

Overall, despite the fact that payday loan lenders are going to be subject to following a code which is going to be set across the entire sector, there is a belief that making too dramatic a change would actually do more harm than good over time. Instead, it is believed that consumers should be brought more up-to-date on what the situation is at present – through providing in-depth information about the loans on the price comparison websites which they can be found.

A representative from the Office of Fair Trading was able to provide more information about the decision which was made about the short-term credit sector. He said: “Our report has found that people who use high-cost credit have limited options and find it difficult to exercise what choice they have to obtain the best deal.”

Because of the current situation which is seen in the payday loans online market, it is believed that it isn’t too simple to just cap interest rates and address the high costs which some lenders levy onto the borrowers who use their services. This could perversely damage the market and make lenders far less competitive than they are at the moment, and this would ultimately act as a disadvantage to borrowers over time.

Consumer Focus has verified this judgment, and they have said the Government should bring all of this into consideration. “Simply clamping down on high cost lenders will not provide the answer.”

Meanwhile, the FLA is another organisation which backs the findings. They have said extensively that any changes to interest rates would actually mean that credit would not be available as easily to those who need it quickly, and this could actually affect the economy getting back in motion as quickly as the Government would have hoped. In light of the fact that there are few other options for consumers who need a short-term fix for a shortfall in their monthly earnings – potentially because of a financial emergency – it is believed that these improvements to the payday loan sector need to be made. This is because in actuality, there are few other types of credit which are available as a valid substitution for payday loans – with banks and credit unions as of yet not providing the service which is in demand so much at the moment. The changes to benefit consumers are going to be implemented in the immediate future.