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Competition watchdog plans payday loans crackdown

The UK’s competition watchdog has proposed a series of reforms designed to increase price competition between payday lenders in the wake of the Wonga scandal.

The Competition and Markets Authority wants to stimulate a “high quality price comparison sector” for payday loans by requiring all payday lenders to provide details of their products on accredited price comparison websites.

“This will help stimulate greater price competition in a market where many borrowers currently do not shop around – partly because of the difficulties in accessing clear and comparable information on the cost of borrowing,” the CMA says.

“The development of an effective price comparison sector would make it easier for new entrants to become established and challenge existing suppliers by offering better deals for borrowers.”

The CMA is also recommending that lead generators who sell potential borrowers’ details to lenders are required to explain their role more clearly to customers.

“The CMA has found that many borrowers believe that lead generators are themselves actually lenders rather than simply intermediaries,” the regulator says.

“Even where this is understood, there is very little transparency about the basis on which lead generators pass borrowers’ details on to lenders, so that customers are generally unaware that, rather than matching borrowers with the most suitable or cheapest loan on offer, lead generators instead sell borrowers’ details to lenders based on the fees lenders offer to them.”

In addition, the CMA has proposed measures to “help competition work effectively” in the payday loans markets. These include:

  • greater transparency on late fees and charges;
  • measures to help borrowers shop around without damaging their credit record;
  • further development of real-time data sharing systems, which the CMA says will help new entrants better assess credit risks;
  • a requirement for lenders to provide borrowers with a summary of the charges they have paid on their most recent loan and over the previous 12 months.

Simon Polito, who chaired the CMA’s Payday Lending Investigation Group, says: “This is a proportionate set of remedies, which could be introduced quickly to make the payday lending market work much more effectively. We expect to work closely with the FCA to finalise these measures which will complement its work in protecting customers and which together will provide a better deal in future for borrowers.

“Whilst the FCA’s price cap and its other regulatory actions to clean up the market will protect customers from some of the worst excesses, greater competition will drive prices down further and is the only way to ensure that customers are offered the best possible deals.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Admirable but a complete waste of time. Martin Wheatley famously quoted of savers 50% of the population don’t know what 50% actually means. These savers a going to be a lot more savvy than those poor unfortunates who have to rely on payday lenders. I would suggest that no matter how “clear” they make it those who use PDL’s won’t have a clue how to asses the information. By the time all the blurb is approved as being clear and not misleading (with all the caveats and * used) it will be another quango fiasco. The regulations requires so much information to allow people to make an “informed” decision, by the time they wade through it all they are so confused they go with the PDL who will get them the cash the fastest. Those who are trying to find a solution to this abhorrent part of the industry are actually part of the problem as they really do not have a clue as to the mindset and mentality of the types of people who use PDL’s. They really need to be looking much closer to home in order to make a proper start at finding a solution.

  2. Aurangzeb Paracha 10th October 2014 at 11:42 am

    bringing a sense of order and method to the madness behind the payday lending industry is definitely not an exercise in futility ~ putting some basic measures in place such as providing clear, concise and more thorough information to the borrowers and also providing them the opportunity to compare on various products/lender quickly on comparison sites can only benefit a significant majority of such consumers. It can also mean that borrowers will not just be applying directly on websites & companies who have advertised most aggressively. perhaps by getting a comparison of available between lenders and products can judge more effectively interest rates/monthly payments.

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