Fresh debate has arisen over whether high cost credit lenders are preying on the vulnerable or providing a necessary service after the OFT said that it would not be imposing price controls on the payday loan market.
It was reported last week that the Office of Fair Trading had carried out a review into the payday loan market and had decided that the services that these lenders offered were necessary and invaluable to those that were in need of finance but could not go through a mainstream lender. The OFT announced that it would therefore not be imposing price controls on the payday loan market, where the APR is sometimes more than 2500 percent.
However, this decision has now sparked fresh controversy and debate over whether payday lenders and other high cost credit lenders are actually providing a valuable and necessary service or whether they are simply preying on the more vulnerable. As part of its review the OFT looked at a number of loan sectors, including payday loans, which targeted sub-prime customers and low income consumers.
Marie Burton, financial services expert at Consumer Focus, said: “It is a cruel irony that people who are already struggling financially have to pay so much to borrow money. Unless more affordable credit is available, simply clamping down on high-cost lenders will not provide the answer because it may push people to riskier borrowing from loan sharks.”
She added: “The OFT’s report shows that it would be very hard to boost competition among high-cost lenders and drive a better deal for consumers. It is therefore important that the Government considers how it can make sure lower-cost borrowing, like credit unions, is available to borrowers on low incomes.”
Source - Independent