Payday lenders must be more transparent about their charges, according to the findings of an investigation designed to clampdown on the industry and lower costs for millions of consumers.
Under new rules lenders will have to list their deals on price comparison websites and make it easier for customers to compare the total cost of different loans offered by various lenders.
Payday lenders will also have to provide customers with a summary of the total cost of their loans, as well as how additional fees such as late repayment affect the cost.
The watchdog concluded that a lack of price competition between lenders had driven costs higher for borrowers, with most people failing to shop around partly due to a lack of clear information on charges.
Simon Polito, who ran the inquiry, said: “We expect that millions of customers will continue to rely on payday loans. Most customers take out several loans a year and the total cost of paying too much for payday loans can build up over time.”
The watchdog’s decision follows an earlier clampdown by the UK’s financial regulator, the Financial Conduct Authority (FCA).
The authority introduced a price cap on 2 January, to ensure that borrowers are never forced to repay more than double the amount of their original loan.
Interest and fees were capped at 0.8% a day, lowering the cost for most borrowers, while the total cost of a loan was limited to 100% of the original sum. Default fees were be capped at £15 to protect people struggling to repay their debts.
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. Only price competition will incentivise lenders to reduce the cost borrowers pay for their loans.”
Payday lenders will be forced to publish the details of their products on at least one price comparison website, authorised by the FCA. The CMA said on Tuesday it would work closely with the FCA to implement the new recommendations.
