Achieving Safety and Affordability in the UK Payday Loans Market
In the aftermath of the global financial crisis, financial regulation and supervision has been significantly reformed in the UK. As an important part of this reform, consumer credit, including payday loans, has been transferred to the new conduct of business regulator and supervisor, the Financial Conduct Authority. This paper considers the key rules on responsible lending and product regulation, introduced to protect the payday loans consumers. It shows that the responsible lending regime now reduces the risk that payday loans will be given to those who cannot afford the high costs involved, although responsible lending will only be fully effective if credit reference agencies hold up-to-date and correct information. Product regulation, in the form of a rollover restriction and a price cap, should make payday loans cheaper and safer for those who do use them, although, for the price cap to be most effective, steps must be taken to enhance price competition in the space below the cap. Finally, it is shown that firms are now subject to interventionist, rigorous, and consumer-centric supervision, which seems to stand a good chance of securing compliance with the new rules.
KeywordsConsumer credit Payday loans Financial Conduct Authority Responsible lending Product regulation
The author is greateful to Professor C. Willett (University of Essex) and the three anonimous reviwers for helpful advice and comments. The author also thanks Professor R. Lastra, Dr M. Goldby and Dr C. Russo for advice on earlier versions of this work carried out during LLM studies at Queen Mary, University of London. All mistakes remain the responsibility of the author.
Conflict of Interest
The research has not received external funding, and to the best of my knowledge, neither are there any other possible sources of conflict of interest. The research is my independent work and has no connection with the Oxford Citizens Advice Bureau.
The research has not involved human participants or animals.
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