Payday Loans Face Online Shake-Up - Regulator
New (KOSDAQ: 160550.KQ - news) rules for payday loan firms have been published which could boost price competition and help borrowers shop around.
In its final report on the controversial industry after a 20-month investigation, the Competition and Markets Authority (CMA) said it was ordering online companies to publish details of their products on at least one price comparison website (PCW).
But it said the site must be authorised by the Financial Conduct Authority (FCA) and it admitted there was currently no commercial PCW with such approval on payday loans.
The CMA said lenders would be obliged to set up a site if one did not emerge but it added there would be an additional consultation before the ruling was implemented.
The measures were announced as Wonga - the country's best-known payday lender - confirmed it was cutting 325 jobs.
It said it was cutting costs as it responded to tighter regulation, meaning it would be smaller and less profitable in the short term, but it wanted to ensure it operated "fairly and responsibly."
The CMA said the investigation into the payday market had found that a lack of price competition between lenders had led to higher costs for borrowers and many did not shop around, partly because of the difficulties in accessing clear and comparable information.
The regulator also cited a lack of awareness of late fees and additional charges.
The CMA estimated the UK's 1.8 million payday borrowers could save themselves an average £60 annually by hunting down cheaper deals.
Payday lenders operating online and on the high street will also be ordered to provide existing customers with a summary of the cost of their borrowing.
Its action is part of a wider regulatory focus on the industry.
Politicians and consumer groups demanded action on the treatment of customers who fell foul of sky high interest rates for late payments.
The FCA has already strengthened its rules under which payday lenders are allowed to operate and has placed limits on the amounts lenders are allowed to charge as well as the number of times that they can roll a loan over.
Simon Polito, chair of the CMA's Payday Lending Investigation Group, said: "The payday lending market is undergoing substantial change as a result of FCA initiatives to eradicate unacceptable practices.
"Our actions complement the FCA’s measures and are aimed at making the market more competitive and further driving down costs for borrowers."
Russell Hamblin-Boone, chief executive of the CFA industry body, said: "Today’s short-term lending industry is very different to the one that the CMA observed at the start of its investigation in 2013.
"The FCA’s rules, including a cap on the amount that lenders can charge, have created a new lending landscape and there are now fewer lenders granting fewer loans but the demand for loans still exists.
"The CMA’s final report, which we welcome, gives borrowers even greater transparency from a sector that is pioneering real-time data sharing and simple, affordable lending.
"We need to draw a line under the past and recognise the value of short-term lending in a competitive consumer credit market."
