Cracking down on payday lenders will hurt the poor

Payday loans and pawnbrokers are a common feature of the nation’s high streets today, as they have been for centuries. Recently however they have experienced something of a boom. Now they are also going online and increasingly advertising their products on TV. One company in particular – Wonga – has become something of a household name. All of this has provoked calls for the sector to be regulated or even outlawed.

Now we have a summit and a lot of public statements from politicians to the effect that the activities of payday loan companies are uncompetitive and against the public interest. This kind of policy agenda is wrong on a number of grounds.

It would firstly be wrong in itself, as it would prohibit a voluntary transaction between consenting adults that does not cause direct or immediate harm to anyone, and certainly not to third parties. In economic terms such action would also be misguided and would harm the people it is intended to help, the poor.