The Competition and Markets Authority (CMA), which took regulation of the payday loans market on from the Competition Commission at the start of April, made the proposal as part of the provisional findings of its year-long investigation into the payday lending market.
The CMA says the average payday loan customer could save between £30 and £60 per year if the market were more competitive and they were given the ability to shop around for the best deal. The competition authority estimates that total savings for UK customers from greater competition could be more than £45m a year, relative to the total £1.1bn earned by payday lenders.
The price comparison website would allow a customer to specify the value of the loan they are seeking, the period over which they wish to pay and the date on which they require the funds to be borrowed, the CMA suggests.
In addition to the establishment of a price comparison website, the regulator is also looking into the requirement for greater transparency from lead generators – sites that handle the initial loan application, before selling on the detail to another lender.
The CMA found that 40 per cent of new online borrowers take out their first payday loan via a lead generator, but the way in which these companies earn their money, by selling applications to the highest bidder, is often not made clear on these websites and customers are unaware these companies are not actually providing the loan.
The regulator is also calling on payday lenders to provide clearer upfront disclosure of borrowing costs if a loan is not paid back in full and on time.
Simon Polito, chairman of the payday lending investigation group and CMA deputy panel chair, says: “Short-term loans like these meet a very clear need for around 1.8 million customers a year. This level of demand isn’t going to go away so it’s important to ensure that this market works better for customers. Our focus is now on taking practical steps that will make a real difference to borrowers so we now want to hear from all those involved on how best we can achieve this.”
The CMA analysed data relating to more than 15 million payday loans taken out between 2012 and 2013, studied Credit Reference Agency records for more than 3,000 payday loan customers and carried out its own survey of 1,500 recipients of payday loans to compile its report.
The new measures from the CMA, which have now gone to consultation and will be provisionally decided on by early October, will work alongside changes already being made by the regulator for consumer credit, the Financial Conduct Authority. These moves include the limiting of “rollovers”, the introduction of stricter affordability checks, more sensitive treatment of debt problems and the introduction of a price cap in 2015.