Rate cap research "deeply flawed"
15th June 2004

Debt on our Doorstep has learned that the DTI is due to release a report detailing the operation of interest rate ceilings in Europe and the U.S within the next few days. However, initial drafts of the report reveal it to be deeply flawed.

Written by independent research group Policis, the report studies Germany, France and a number of U.S states and purports to find evidence that interest rate caps cause credit to be restricted to riskier borrowers, or leave them open to forms of credit which make high charges for default (such as sub-prime credit cards). Debt on our Doorstep have written to the DTI expressing concerns about the poor quality of evidence made to back up those charges in the report, and pointed to academic research from the University of Florence, which indicated that the level of the cap is key to whether or not credit lending becomes restricted.

Interestingly, the Policis research looks only at the experience of countries with caps set at 36% or below, and is unable to determine whether or not the varying levels of cap have an impact on the amount of credit available to people on low incomes.

Debt on our Doorstep have written to the DTI requesting that the report be sent to consumer groups and academics in the countries that were researched and their comments on the quality of the evidence contained in the report be published alongside its conclusions. To date, however, the DTI have been unwilling to do this. A press briefing on the failings of the Policis research is available here