Consumer credit too weak to support rate cap interventions

Although the recession officially ended months ago, consumers are still adopting a cautious approach to taking out credit, according to the latest figures published by the Finance & Leasing Association.

The latest figures show that total credit lent by FLA members in February was £3.7 billion. This is just five percent lower than lending in February 2009. But it is almost 30% lower than lending levels in February 2008.

In their manifestos, the three main parties proposed rate caps for different parts of the consumer credit market: Labour for payday lending and home credit; the Liberal Democrats for the credit and store card markets; and the Conservatives for store cards.

Fiona Hoyle, FLA Head of Consumer Finance, said: "Caps on interest rates are popular with the political parties, but they are not always good for consumers. If the limit is set too high, consumers end up paying more, and if the limit is set too low, lenders will be forced to exit the market leaving some customers financially excluded or prey to loan sharks.

"With the economy still fragile - just last week new figures showed that unemployment and inflation were both rising - the focus should be on helping customers in financial difficulties rather than rate caps which could effectively restrict the assistance lenders can provide."