Representatives of the payday loan industry will be mandatorily required to provide full details of their products on price comparison sites in order to assist prospective borrowers to attain the most beneficial deal for their circumstances, under new competition regulations devised by the Competition and Markets Authority (CMA).
Speaking candidly about the prognosis of the payday sector at present, the CMA argued that there are too many instances at present of consumers being provided unclear information about the long-term borrowing costs of the liabilities they are taking on, which is perpetuating their financial difficulties and creating a landscape of debt which simply should not exist.
The introduction of the new competition regulations will aim to address this problem by allowing consumers to identify the best deals online via comparison sites, which will hopefully raise industry competition levels and thus encourage lenders to provide lower interest offerings, the CMA identified.
The new rules will also necessitate that payday loan companies are more transparent about their hidden fees and late charges, which will make it far simpler for borrowers to analyse the entirety of the market without doing damaging to their personal credit ratings. The introduction of new information sharing protocols between different members of the payday loan industry is hoped to ease the logistics are achieving this goal by forcing them to provide their debts with a clear breakdown of charges.
The draft regulations are the latest clampdown by industry regulators on the conduct of renegade Payday loan companies, after sector watchdog the Financial Conduct Authority (FCA) implemented an interest cap in July limiting the amount a borrower can repay on their loan to no more than double its value. The CMA outlined the new regulations are intended to ensure that the interest-rate cap didnít inhibit competition levels in the industry, by creating an online marketplace where they can vie for supremacy in the industry.
The FCA have already been hugely active in devising and applying rules to limit the scope of the payday sector, after a winter where the public feeling towards the industry grew increasingly negative following a concerted campaign from consumer groups and politicians to highlight their exploitation of financially weak householdís and apply ludicrously high interest rates to their loans.
In particular, industry leader Wonga was the most heavily affected, with news filtering through only last week that they were forced to write off £220 million of liabilities they had distributed to 375.000 individuals which it itself conceded it had no right to have authorised.
Simon Polito, chairman of the CMAís payday lending investigation group, said: ìGreater price competition will make a real difference to the 1.8 million payday customers in the UK. At the moment there is little transparency on the cost of loans and partly as a result, borrowers donít generally shop around and competition on price is weak.
ìLower prices from greater competition would be particularly welcome in this market. If you need to take out a payday loan because money is tight, you certainly donít want to pay more than is necessary. Given that most customers take out several loans in a year, the total cost of paying too much for payday loans can build up over time.î
The CMA also urged policymakers to impose deeper and more stringent checks on the activity of lead-gen websites, which currently advertise themselves as provider of loans, necessitate that prospective borrowers fill in their form, and then sell their information to third parties in order for them to preside over their applications. The CMA has called for rules to be introduced which will force such companies to be completely transparent of their conduct to industry regulators, so that the trend of profiteering from other peopleís financial uncertainty begins to be contained and the endemic exploitation of such people by the virtual community finally gets addressed.