The Impact on Business and Consumers of a Cap on the Total Cost of Credit

This research was commissioned to inform understanding of the likely impact on lenders and consumers of introducing a variable cap on the total cost of credit that can be charged in the short-to-medium term fixed-rate credit markets. The purpose of the research was not to make a recommendation to BIS on whether or not a cap should be introduced, but to provide an up-to-date evidence base that would help inform policy decision-making in this area.

The research covered home credit, pawnbroking, retail payday lending (carried out in-store) and online payday lending. It is the largest social research study of customers of high-cost credit carried out in the UK.

Six main issues associated with short-term credit were indicated by this research. Two relate to the cost of credit: the total charge for credit and default charges. The other four relate to affordability assessment; financial difficulty; multiple and repeat borrowing from short-term lenders; and loan renewals.