The Financial Conduct Authority (FCA) has announced new proposals to corral the controversial industry, in which lenders charge interest at rates of as much as 5853% APR.
It follows price cap proposals put forward in July, which would limit how much lenders can charge their customers.
The FCA says it doesn’t want the cap to simply become a ‘going rate’ charged by all lenders, and proposes a “high quality price comparison sector for payday loans” to increase competition and, hopefully, drive down prices.
It goes as far as to say that if someone wants to run a payday loan company, they would be forced to give details of their products to an accredited price comparison website.
In its own words, the FCA 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.”
And that’s not all. The Competition and Markets Authority (CMA), which regulates comparison sites, is working with the FCA on the proposals, and has called for:
- Lenders to be clearer about late fees and charges
- Ways for borrowers to shop around without harming their credit score
- Lenders to provide borrowers with a summary of the charges they’ve paid on their most recent loan and over the previous 12 months
‘Competition on price is weak’
Simon Polito, Chair of the CMA’s Payday Lending Investigation Group said: “Greater price competition will make a real difference to the 1.8 million payday customers in the UK. At the moment there is little transparency on the cost of loans and partly as a result, borrowers don’t generally shop around and competition on price is weak.”
“By ensuring that there are accredited websites providing impartial, relevant and accurate information about payday loans, we can make it easier for customers to make comparisons and there will be a much greater incentive for lenders to offer lower cost loans and to win borrowers’ business.”
The FCA proposals come as the Financial Ombudsman Service reveals there has been a significant increase in the number of complaints it receives about payday lenders.
There’s been a 20% increase in complaints so far this year, when compared to same period last year. The ombudsman says it is now taking on 70 new cases every month.
A spokesperson said: “We regularly hear from people whose debt is keeping them awake at night, they took out a payday loan as a desperate last resort and their debt problems have got worse instead of better.
“Don’t suffer in silence. If you have a problem with a payday loan that you can’t sort out, don’t hesitate to get in touch with the ombudsman. We’ll help you quickly get things sorted."
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