OFT Against High Borrowing Rate Cap

• News
• Published: 16 Jun 2010 in Money and Loans

Consumer watchdog the Office of Fair Trading (OFT) has announced it will not be recommending that interest rates charged on high-cost loans should be capped.

OFT officials carried out an investigation into the high-cost credit sector, such as home credit, pawnbroking, payday loan and rent-to-buy markets. It is worth about £7.5 billion a year and is typically used by people on low salaries who need to borrow small sums for a short time. 

In the report, the OFT said that the market, although expensive, provided funds for people who are unable to access cash through more mainstream sources and that the Government should act if it feels there is a problem with such borrowing. 

The OFT said: "In a number of respects, these markets work reasonably well in that they serve borrowers not catered for by mainstream suppliers, complaint levels are low and there is evidence that for some products, lenders do not levy charges on customers who miss payments or make payments late.

"However, to the extent that problems arise from more deep-seated issues, such as weaknesses in the financial capability of consumers, the OFT recognises that the sorts of recommendations it is making can make only a limited difference."