9th October 2014
The Competition and Markets Authority (CMA) has set out proposals to increase competition between payday lenders in a bid to get borrowers a better deal.
Under the proposed regulations, payday lenders would have to provide details of their products on price comparison websites such as uSwitch, to allow people to make quick and accurate comparisons between loans.
The CMA’s statement said: “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 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 proposing a number of other measures designed to help competition work effectively in this market. These measures involve:
Commenting on the proposals, Andrew Hagger of Moneycomms.co.uk, said: “Forcing payday lenders to list on price comparison sites is a positive move, however there is more to be done, particularly in raising awareness of alternative cheaper sources of borrowing.
“Just because someone doesn’t have a flawless credit record it doesn’t mean payday loans are the only option, they may be quick and convenient but that’s where the benefits stop. Comparison sites should step up and use this as an opportunity to make a real difference and highlight cheaper alternatives such as credit unions, non prime credit cards and guarantor loans. Whether this will happen will no doubt be governed by the size of the commercial kickbacks paid by payday lenders compared with the cheaper borrowing options.”
The CMA’s initiative has been developed in light of the Financial Conduct Authority’s (FCA) price cap proposals announced this July and will help ensure that the cap, which is intended to protect consumers from excessive charges, does not simply become a going rate charged by all lenders.