Plans to force payday lenders to publish their rates and, crucially, the total amount payable on loans on a price comparison website, have been widely criticised.
After a 20-month investigation, the Competition and Markets Authority yesterday told lenders they will have to set up a Financial Conduct Authority-authorised comparison site if a commercial one fails to emerge.
Simon Polito, chair of the CMA’s Payday Lending Investigation Group, warned that “We expect that millions of customers will continue to rely on payday loans.”
But he thinks costs could be driven lower. “We want to ensure that customers are able to take advantage of price competition to further reduce the cost of their loans,” he said.
“Only price competition will incentivise lenders to reduce the cost borrowers pay.”
But Martin Lewis, of MoneySavingExpert, said: “This is a rather flaccid response by the CMA. To lead on ‘payday loan price comparison’ as its core recommendation seems to indicate it doesn’t really understand the payday loan environment.”
Meanwhile, Debt Advice Foundation chief executive David Rodger said more needed to be done. “We are still seeing nothing that balances the ruthless marketing of loans to people who need help with managing their finances, not extra debt.”
Mr Lewis said the payday loan price cap introduced by the FCA last month “will have far more impact than this belated move ever will”.
Alongside the price cap, a range of other new measures should increase competition, said Mr Polito.
These include forcing payday lenders to 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 the cost.
Payday lenders have already been hit by a range of restrictions introduced by the City watchdog in the last year, including the price cap.
Britain’s biggest payday lender, Wonga, yesterday announced plans to axe more than 325 of its 950 workers in London, Dublin, Cape Town and Tel Aviv. It is closing the Israeli and Irish offices.
Doorstep lender Provident Financial yesterday revealed it is scrapping its loss-making Polish business after failing to crack the eastern European market.
The FCA yesterday 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 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