Restriction of payday loans would hit the poorest the hardest

Banning payday loans would make a risky situation riskier

Commenting on the payday lending summit, Mark Littlewood, Director General of the Institute of Economic Affairs, said:

“We should be very careful what we wish for before heavily regulating payday loans. We risk harming the very people we intend to help – the poor. Evidence shows us that bans and restrictions can often make a difficult situation more difficult still. For example, interest caps in France and Germany saw financial breakdowns -  such as bankruptcy - rocket to five times the UK’s level amongst people with debt troubles.

“Politicians are sending out very mixed messages. They want to limit lending from companies such as Wonga, but simultaneously complain that major banks are not lending enough to relatively risky small businesses. It would be a grave error indeed to credit politicians with the wisdom to determine what interest rates should justify what loans.”

Notes to editors:

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The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.
 



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