DTI Ignores Evidence on Caps
27th June 2005

The research commissioned by the DTI in 2004 has ignored important evidence on the role of interest rate caps in combating financial exclusion. A briefing submitted to M.P's by Debt on our Doorstep claims that the Policis research was unbalanced in its approach - adopting form the very start a free-market model and ignoring important research from leading academics in the U.S and Germany that interest rate controls could have positive affects on markets and reduce financial exclusion.

Damon Gibbons, Chair of Debt on our Doorstep, called for the DTI to investigate why the research it commissioned failed to report on the positive aspects of interest rate ceilings despite stating that it had undertaken a full review of all available academic literature.

"The fact is that the Policis report states it has looked at all the available research on this matter but doesn't even provide a basic bibliography, so it's impossible to tell what they looked at and what they didn't. But it is clear from the report that they have failed to consider key issues concerning the operation of interest rate ceilings that should have been picked up if they had read the literature available from the U.S and Germany. Leading academics from those countries have been warning that the move to increased risk-based pricing contributes significantly to financial exclusion and that interest rate ceilings can act as a barrier to this, benefitting lower income borrowers. The Policis report fails to mention those effects at all, and is unbalanced as a result."

A copy of the briefing is available here.