Interest rate caps on payday loans will reduce the amount of finance available to people who rely on short-term lending and will engender a culture of avoidance within the industry, says a UK payday lending campaigner.The chief executive of the Consumer Finance Association of the United Kingdom, John Lamidey, will be meeting with his association's Australian counterpart, the National Financial Services Federation, as it prepares its submission to next month's inquiry by the Parliamentary Joint Committee on Corporations and Financial Services into amendments to consumer credit law that will cap lending rates.Lamidey's organisation represents the UK's payday lending industry.  In August, the Minister for Financial Services, Bill Shorten, released a draft amendment to the National Consumer Credit Protection Act that introduced limits on what short-term lenders can charge.  The cap on costs will apply to finance contracts up to A$2000 that run for less than two years.Lenders will be limited to charging an upfront fee of 10 per cent of the total amount borrowed and two per cent each month for the life of the loan. Apart from fees payable in the event of default, the lender cannot apply any other charges.The two per cent monthly charge applies to "the first amount of the credit contract, excluding the upfront fee."For larger loans, a credit provider is prohibited from entering into a contract where the annual "cost rate" exceeds 48 per cent.Lenders will not be allowed to refinance small amount contracts. The aim is to stop debt rolling over and compounding.The lender will be required to inform consumers of other options, such as Centrelink advances, no-interest and low-interest loan schemes run by community organisations, and the availability of hardship programs run by credit providers and utilities.Lamidey said: "In most of Europe, it is the process that is regulated. There are rules about how short-term loans are advertised, about the information consumers must be given before they sign a contract, about how collections are conducted and about the management of arrears. "There are a couple of countries, such as Ireland, where the product is regulated, rather than the process, and you have caps. The experience is that it limits the availability of such finance."It also engenders avoidance. As soon as you define a product, so that you can make rules, then the market moves to a product that doesn't fit the definition."Lamidey says the UK experience with payday lending shows that most people can manage the credit without getting into hardship. Of people who took out a payday loan, 28 per cent rolled it over to a new loan. Of those who rolled over, the average number of rollovers was two.Lamidey said: "Compare that with people with bank accounts. Fifty-eight per cent went into unauthorised overdraft and paid high penalty fees. Of those that went into overdraft the average number of unauthorised transactions was six. "What the evidence suggests is that people understand what they are getting into when they borrow short-term and they are able to manage the debt."