The Competition and Markets Authority has this morning confirmed that payday lenders will have to publish their rates and, crucially, the total amount payable on a City watchdog authorised price comparison website.
After a 20-month investigation into the payday lending market, the CMA published its final report today including measures to increase price competition between payday lenders and to help borrowers get a better deal.
It concluded that a lack of price competition between lenders has led to higher costs for borrowers but an price comparison site authorised by the Financial Conduct Authority will help drive those down.
It also said that lenders will be obliged to set up an FCA authorised comparison site if a commercial one failed to emerge.
Simon Polito, chair of the CMA’s Payday Lending Investigation Group, said: "We expect that millions of customers will continue to rely on payday loans. But we think costs 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."
The Authority also said payday lenders will have disclose all their late fees and other charges, share real-time data and make the role played by lead generators – which account for 40 per cent of all first-time loans – much clearer to consumers.
Finally, online and high street payday lenders will be ordered to provide customers with a summary of their cost of borrowing, including the total cost of their most recent loan, as well as the cumulative cost of their borrowing with that lender over the previous 12 months and how late repayment affected their cost of borrowing.
Alongside the price cap introduced by the FCA in January, the measures should increase competition, said Mr Polito. "The FCA’s 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," he said.
Which? executive director, Richard Lloyd, said: "The payday lending market has been rife with poor practice but today’s proposals, alongside the Financial Conduct Authority’s price cap and tougher supervision, are a step in the right direction to make lenders start to compete on price and treat customers fairly. We now want to see the regulators turning their attention to unfair practices and excessive fees in the wider credit market, including unauthorised overdrafts."
The FCA has today issued a consultation paper on its plans to tighten up consumer credit rules to give consumers greater protection on guarantor loans and in other areas.
The moves will "address potential areas of harm to consumers that we have observed in the market", the FCA said.
The plans include a requirement for guarantor loan firms to provide adequate explanations to guarantors, assess their creditworthiness and treat them with forbearance. They are also considering new rules on payment for credit brokers
It has given the consumer credit industry until 6 May to respond.Reuse content