Payday lenders given 12 weeks to change

The Office of Fair Trading (OFT) has given the UK's 50 biggest payday lenders, including firms like Wonga, 12 weeks to change their practices or lose their licenses. The OFT's chief executive Clive Maxwell said:

We have found fundamental problems with the way the payday market works and widespread breaches of the law and regulations, causing misery and hardship for many borrowers.

Restrictions of usury are nothing new, but well-intentioned moves to protect vulnerable individuals who receive short-term credit may do more harm than good. Matt Zwolinski's article 'Are Usurious? Another New Argument For the Prohibition of High Interest Loans?' explains that payday loans are voluntarily agreed and competitive pressures keep exploitation in check. Regulators (such as the OFT) however are poorly placed to assess the relevant costs and benefits of these arrangements.

Restrict payday lending, and we may see vulnerable individuals turn to less civilised arrangements to acquire credit. Black market lending has a deservedly bad reputation.