It will now order lenders – some of which charge interest at rates as high as 5,000%, to provide clear information about their products on at least one price comparison website each.
Clear and objective
To make borrowers more aware of what they’re getting into when they apply for a payday loan, lenders will have to give “clear, objective and comparable information on all potential loan costs, in particular the total amount payable and have the ability for customers to compare different loans by searching easily on the most relevant features such as loan amount and duration”, says the CMA.
The watchdog expects price comparison websites to show payday lenders on their sites, but if they don’t, the lenders themselves will have to set up their own regulated price comparison sites.
It’s part of a slew of new rules the CMA is bringing in to clean up the payday loans market, which also includes the following recommendations:
- Lenders should provide clearer information about late fees and other additional charges
- Customers should be able to shop around for loans without damaging their credit scores
- Improved real-time data sharing between lenders and credit reference agencies to make credit assessment more accurate
- Websites which sell potential borrowers’ details to lenders should explain clearly how they operate
‘Paying too much’
Simon Polito, Chair of the CMA’s Payday Lending Investigation Group, said: “Most customers take out several loans a year and the total cost of paying too much for payday loans can build up over time. During our investigation, we found that there was often a substantial difference in this market between the most expensive and cheapest deals.”
In January, payday loan rates were capped at 0.8% per day of the amount borrowed, with no borrower forced to pay back more than double the loan they took out. Forcing lenders onto price comparison sites will make the market fairer still, says the CMA.
Mr Polito said: “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. 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.”
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