The evidence suggests that the regulation of consumer credit markets leads people who need temporary access to finance to use products that are unsuitable. The restriction of consumer credit also exposes those who take out less suitable forms of finance to complete financial breakdown. The criticisms of the consumer credit industry are exaggerated and, largely, display ignorance of the reasons why consumers access short-term lending. The measures proposed by the Financial Conduct Authority are innocuous enough on their own. But statutory regulation prevents the market from developing its own regulatory institutions, and leads the industry to become answerable to a regulatory bureaucracy, not its customers. Statutory regulation of the financial services industry has mushroomed since 1986 and has failed dismally. Scandals have not been reduced and consumers are not better served. Philip Booth is editorial and programme director at the Institute of Economic Affairs.
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