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Looking at the practice: An analysis of the impact of legislative approaches to the problem of payday lending schemes

This project looks to investigate the impact of the legislation on payday loans in different jurisdictions, and to see whether there are particular regulations which would be beneficial for the UK to adopt to maximise consumer welfare. A recurring theme in this research is the question of how socially just the law is and ought to be to maximise the welfare of consumers who take out payday loans.

The jurisdictions chosen as case studies for international comparative analysis were:

England and Wales

  • The proposed regulation on pay day lending that will be included in the Banking Reform Bill, will place a cap on the interest rate offered by payday lenders, which will be regluated by the Financial Conduct Authority, and potentially a limit on the number of times that one can 'roll over' an existing payday loan. Through the proposed legislation the government has in effect made a significant U-turn on policy regarding payday loans. Given the charged political context which exists between pay day lenders who argue that they are necessary for the growth of the economy within these austere times, it is important to analyse what consumer risks existed forcing the government to change its mind. Secondly, it is also essential to see whether different countries had similar considerations when they implemented their legislation.

Canada

  • Chosen because they have a similar common law system and they have also followed similar economic models in the post-recession period. The legal framework on payday loans in Canada will be a valuable case study since a prominent British payday lending company, Wonga, has set up a franchise in Canda but it has been highly unsuccessful due to the socio-legal environment. Through this project we hope to assess to what extent the law has contributed to discouraging the growth of payday lending companies in Canada.

Georgia, USA 

  • The state of Georgia has the toughest laws on payday lending in the world, to be specific it currently implements a ban on pay day lending. Very few studies have been done on such legislation, which provides a great opportunity to make a significant contribution to the literature on the area of law. We will focus on secondary research that illustrates the impact of the ban on payday lending on communities, individuals and lenders with the Georgian context.