Regulating high-cost short-Term credit in the UK: Is there scope for libertarian paternalism based provisions?

Abstract

The regulatory protection of credit consumers, in general, is paramount due to the considerable use of credit, the imbalanced bargaining positions of the contracting parties and the adverse effect of over-indebtedness on individuals and society alike. These concerning factors are worsened in the case of High-Cost Short-Term Credit (HCSTC) consumers owing to their disadvantaged financial position and other recognised vulnerabilities. In this respect, the paper argues that direct regulatory intervention, despite its importance, is not always a silver bullet. Through the analysis of the overhauling of the UK HCSTC regulatory framework, this paper demonstrates the shortfalls of these regulatory changes. Accordingly, the paper shifts the argument towards improving the decision-making mechanisms of HCSTC consumers, ie the role of libertarian paternalism-based interventions. By using a bespoke experimental survey, the paper demonstrates the type of behavioural interventions that can assist in this endeavour and which the regulator could possibly mandate.