The Office of Fair Trading (OFT) decided against capping interest rates in the payday loan industry back in June, as stated in The Guardian. This met with a lot of criticism; in particular, people have argued that the high levels of interest are exploitative and that they prey on people who are susceptible to accumulating debt. However, we at 247Moneybox.com feel that this criticism is unfounded and argue that this industry offers a very popular and above board service regulated by the Financial Services Authority (FSA).
An unreasonable market, on the other hand, may assume that the prices are unfairly inflated above what they cost and that a few companies receive a disproportionate amount of profit. An unreasonable market may have an oligopoly or monopolistic structure (where only a few companies dominate the market), and there would be obstacles to new companies joining the market and sharing the profit. However, if you read these articles from The Guardian or BBC News, you’ll see that the payday loan market has swelled with new competitors and new customers.
If the price mechanism that companies compete on gets frozen, then they will have to find another way to generate revenue to break even; this will come in the form of excessive late charges, administrative fees and other hidden costs. Who will be the people who lose out? The people who apparently are more susceptible to becoming indebted.
