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UK: Strict payday loan caps may actually reduce competition

 |  November 11, 2014

The UK’s Financial Conduct Authority announced Tuesday that it is considering implementing new, strict price caps on payday loan companies in a move that, while aiming to protect consumers, could actually harm competition.

Reports say authorities may impose lending cap costs at .08 percent a day and 100 percent overall, meaning consumers would never pay more than double what they initially borrowed. The rules would go into effect in January after the FCA launched an investigation into the payday loan industry.

The regulator acknowledged that these new caps could cause smaller lenders to exit the market, and some have raised concerns that it would harm competition. But the FCA addressed those concerns, noting that its “analysis is that for online firms, we do not expect the [new rules]…to reduce competition, given that price competition is already limited. More firms does not necessarily equate to better quality products.”

The FCA added that its analysis aligns with that of the Competition and Market Authority’s, as both watchdogs found “that a small number of firms have a high market share without evidence of smaller firms exerting price pressure on them,”

Full content: City AM

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