The Competition and Market Authority (CMA) have told payday lender companies to encourage greater competition and transparency by putting their products on price comparison websites. They are responding to the fact that most customers that are borrowing from them are not looking around for the best deals.
This announcement is the result of an investigation by the CMA into the payday loan market- it has taken place across 20 months. The CMA is hoping the implementation of these new rules will end up saving millions of pounds for the customers that utilize these services.
Moreover, the CMA have said the lenders now have to give a loan summary, detailing the overall cost of the loan for each of their customers. They have also endorsed the lenders being clearer on late charges and fees, and the introduction of regulations which will aid borrowers looking around the market without the possibility of them ruining their credit records.
Other recommendations include websites giving possible borrowersí personal information to lending firms becoming much more transparent about what exactly they do. Also, the need to improve real-time information sharing services in order to ensure credit risks are better assessed by lenders.
If the payday lenders fail to respond to such requests, a price comparison website will be set up by the Financial Conduct Authority.
These proposals by the Competition and Market Authority come after the introduction of a cap on payday loans in January. As a result, payday loan rates are limited at 0.8% each day whilst you cannot charge someone more than twice the amount they originally took out in a loan.
The chair at the Payday Lending investigation which is part of the Competition and Market Authority, Simon Polito stated: ìThe FCAís price cap will reduce the overall level of prices and the scale of the price differentials but we want to ensure more competition so that the cap does not simply become the benchmark price set by lenders for payday loans.î
He went on to say: ìWe think cost can be driven lower and want to ensure that customers are able to take advantage of price competition to further reduce the cost of their loans. Only price competition will incentivise lenders to reduce the cost borrowers pay for their loans.î
The chief executive of the charity Money Advice Trust, Joanna Elson commented: ìThis is good news for the consumer. More competition and transparency in the payday loan market will ensure that the FCAís cap on the cost of credit remains precisely that- a cap, not the norm.î
She also moved to caution potential customers on payday loans: ìHowever, these improvements in the way that payday loans are regulated must not dilute the core message that payday lending remains an extremely expensive way to borrow.î