Payday Lenders Must Put Loan Information On Price Comparison Websites, CMA Says
Online payday lenders should post details on price comparison websites so that potential borrowers shop around and make sure they get the best deal.
The Autorité de la concurrence et des marchés made this request by publishing its findings following a 20-month investigation into the payday lending industry. Borrowers would earn around £ 60 a year if it was easier to find the cheapest payday loan, the CMA survey concluded.
He found that the majority of borrowers don’t shop, in part because it’s difficult to compare the price of borrowing. In addition, price comparisons are not straightforward; a lender may charge a lower interest rate but add various additional fees and late payment fees.
Transformation: Payday loans to face much stricter regulation, following CMA investigation and crackdown by FCA financial watchdog
Tighter restrictions on the payday lending industry following a crackdown by the Financial Conduct Authority as well as the CMA will make short-term high-interest lending much less profitable and have already seen several players pull out and drop out. ‘others reduce their activities.
Wonga revealed yesterday that it was preparing to cut a third of its workforce as part of a “strategic refocus” of its consumer activities.
The UK’s largest payday lender has launched immediate consultation with staff threatened with layoff and announced plans to cut 325 jobs.
President Andy Haste said Wonga will become smaller and less profitable in the short term as it introduces changes to ensure it lends “fairly and responsibly.”
It is expected that a gradual reduction in jobs will primarily affect the teams that support the UK operations of London, Dublin, Cape Town and Tel Aviv, ultimately leaving Wonga with a UK-linked workforce of around 325. .
Debt: Around 14% of loans were never repaid in full, according to loan issuance data in 2012, AMC study found
At present, none of the major price comparison sites offer the ability to compare payday loans. In their testimony to the CMA, many said they were hesitant to engage with high-interest lenders because of the potential reputational damage it could cause to their brands.
They were also concerned that the current regulations for Google search terms would make it difficult to advertise their existing business at the same time as compare prices for payday loans.
uSwitch and MoneySupermarket have said they have no plans to launch a payday loan comparison chart, although others have indicated they could move in that direction in the future if the right conditions are met. in place.
Transformation: In the past, some loans were rolled over up to ten times – now loans can only be rolled over twice, under new FCA regulations
Gocompare and Comparethemarket said if the right regulations and consumer protection were in place, they would consider launching a salary comparison arm. Confused.com said it might consider showing medium to long term payday loans.
The Financial Conduct Authority also told the CMA that it has received approaches from websites interested in operating an authorized payday loan price comparison website.
If no comparison site decides to take on this role, lenders will be forced to set up a price comparison site themselves, which will be authorized by the regulator FCA.
Price Differences: There is a big disparity between the costs charged by different lenders depending on when they are repaid, rolled over or repaid late – making it difficult for borrowers to compare
The CMA said ideally multiple comparison sites would list payday lenders and said they would prefer at least one site not associated with the industry to take on the role so that the service remains and appears impartial.
Only online lenders will need to list their loans on the price comparison website, although large lenders may also do this. both will also be required to provide all existing clients with a summary of the cost of their loan.
This will tell borrowers the total cost of their most recent loan, as well as how the cost of borrowing has accrued over the previous year and how late repayment charges affected their borrowing costs.
The CMA also pointed out that payday lenders have a certain niche for almost instant access to cash. He cited a customer survey that found that 60% of those who take out a payday loan over another type of loan do so because of its convenience.
The CMA’s demands come amid a massive crackdown that has taken place across the industry. The FCA has already tightened the rules under which payday lenders are allowed to operate and placed limits on the amounts lenders are allowed to charge as well as the number of times they can roll over a loan.
Boom: The number of payday loan stores has increased since 1998
As of last month, anyone who borrows money from a payday lender or any other short-term credit provider will never have to pay back fees greater than the amount they originally wanted to borrow – even if she can’t pay off the debt on time.
All fees, interest payments and charges on a loan should not exceed 0.8 percent per day.
Anyone who fails to repay their loan on time should not have to pay more than £ 15 in fees under the measures and someone who borrows £ 100 but struggles to repay it will never pay back £ 200 in total, once the costs and charges taken into account. in.
Meanwhile, someone who borrows, say, £ 100 for 30 days and repays on time should not be charged more than £ 24.
Google searches: Wonga received the highest proportion of Google searches related to payday, followed by “payday loans”
Payday lenders charge a small amount of interest per day, but as time goes on it gets to a high level. Before the crackdown, many had annual percentage rates reaching thousands of percent – however, critics argue that, when it comes to short-term loans, this benchmark interest rate measure is irrelevant.
According to a study by consumer group Which?
Who? Executive Director Richard Lloyd said: “The payday loan market is rife with bad practice, but today’s proposals, along with the Financial Conduct Authority’s price cap and tighter oversight, are a step in the right direction for lenders to start competing on prices and treating customers. fairly.
“We now want to see regulators turn their attention to unfair practices and excessive charges in the broader credit market, including unauthorized overdrafts.”
Find out what the monthly loan payments would be and the total cost over its lifetime, where interest is charged monthly.
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