Competition and Markets Authority (CMA) proposals that the £2.8bn payday loan industry should be forced to sign up to an officially recognised price comparison site were criticised yesterday for not going far enough.
Charities and consumer groups said the regulator needed to do more to crack down on some practices in the high-cost credit sector.
Which? executive director Richard Lloyd said: “The proposals will not be the answer to the bad practices found across the credit market. More must be done to put consumers in control of their borrowing.”
Gillian Guy, the chief executive of Citizens Advice, said: “Being able to compare prices and understand the full cost is important. But borrowers also need more choice.”
The CMA said the aim of its proposal was to stimulate competition and stop lenders simply charging the maximum allowed under the price cap proposed by the Financial Conduct Authority, which is due to come into effect in January.
Accredited price comparison sites would also help consumers to shop around for better deals by letting them see at a glance how much different short-term lenders charge.
Meanwhile “lead generators” – online loan brokers identified as a particular problem – will face tighter restrictions under the proposals.
They will be required to explain their role and how they operate much more clearly to customers. The CMA said many borrowers had no idea that lead generators would sell their details to lenders based on the fees lenders offered them, rather than finding the best rate.
Simon Polito, the chair of the Payday Lending Investigation Group, said: “By ensuring that there are accredited websites providing impartial, relevant and accurate information about payday loans, we can make it easier for customers to make comparisons and there will be a much greater incentive for lenders to offer lower-cost loans and to win borrowers’ business.”
In June the CMA calculated that borrowers were paying up to £60 a year too much because of a lack of competition in the payday loan market.
Yesterday the Financial Services Ombudsman reported that there has been a 20 per cent increase in payday loan complaints in the past year. It revealed that it had consistently found in the consumer’s favour in about two-thirds of cases.
Last week, Britain’s biggest payday lender, Wonga, was forced to write off the loans of 330,000 people after the Financial Conduct Authority accused it of irresponsible lending. The City Watchdog gave warning to other payday lenders that further action would follow, if more were found to be lending money to people without checking properly whether they could afford to make repayments.
The CMA is proposing a number of other measures including greater transparency on late fees and charges – which are not always clear to customers when they are choosing a lender.
It has also called for measures to help borrowers shop around without damaging their credit record, and for further development of real-time data sharing systems, which will help new entrants better assess credit risks.
Lenders will also have to give borrowers a summary of the charges they have paid on their most recent loan and over the previous 12 months, so they have a clearer picture of how much they are spending with an individual lender.
Mr Polito said the proposals “could be introduced quickly to make the payday lending market work much more effectively”. The CMA has given the sector until the end of the month to respond to the proposals.Reuse content