The Competition and Markets Authority (CMA) has declared that payday lenders must make it easier for consumers to compare products.
Its decision should introduce measures that will increase price competition between lenders, which will help borrowers gain a better deal.
The measures are the culmination of a 20 month investigation into the market by the CMA, which aimed to reform the much attacked payday lending market.
Simon Polito, chair of the CMA`s investigation group, says that the `actions are aimed at making the market more competitive and further driving down costs for borrowers`.
And he adds that costs can be driven lower if customers were able to take advantage of price competition.
The investigation found that most borrowers do not shop around for these type of loans, which is not helped by the fact that details of payday loans are not currently available on price comparison websites. Therefore, the CMA has recommended to the Financial Conduct Authority (FCA) that payday lenders should publish details of their products, at least on one price comparison website that is authorised by the regulator.
Details of products should provide customers with 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.
If one or more commercial price comparison websites does not emerge from these recommendations, and get it authorised by the FCA, then payday lenders will be obliged to set one up themselves.
Further recommendations from the CMA include:
-Greater transparency on late fees and charges.
-Measures to help borrowers shop around without damaging their credit records.
-Expanding real time data sharing services to help new lenders assess credit risks more accurately.
-And that websites selling potential borrowers` details to lenders should explain their role much more clearly.
These measures follow on from the introduction of a cap on the cost of payday loans enforced by the FCA, which was enforced on the 2nd of January 2015.
Mr Polito further explained that the price cap will reduce the overall level of prices, however, the CMA wants to ensure more competition, and said: `Only price competition will incentivise lenders to reduce the cost borrowers pay for their loans.`
We can expect results of these recommendations to be discussed and finalised by the summer of this year.
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