Payday lenders urged to bolster transparencyDecember 2014
The UK’s controversial payday lenders could now be compelled to outline their conditions on an independent comparison website under proposals from the government body that promotes business competition.
The lenders, whose annual percentage interest rates can run into thousands, would have to disclose their late payment costs, give customers clear summaries of charges and disclose information on their creditworthiness by, for example, allowing them to check their rating.
The Competition and Markets Authority (CMA), which produced the report, estimated the rules would save consumers £45m ($70m, €56m) a year.
Simon Polito, a City of London solicitor specialising in competition, who chaired the investigation, said: “There is little transparency on the cost of loans and, partly as a result, borrowers don’t generally shop around and competition on price is weak.”
He said accredited impartial websites would create “a much greater incentive for lenders to offer lower-cost loans and to win borrowers’ business”.
The proposals follow rulings by the regulatory Financial Conduct Authority (FCA) that from next month interest should be capped at 0.8% a day, default fees at £15, and total costs at double the initial loan.
The FCA estimates these rules will exclude 7% of borrowers, or 70,000 people, from payday loans. It says: “These are people who are likely to have been in a worse situation if they had been granted a loan. So the price cap protects them.”
The CMA investigation covered 15 million loans taken out between 2012 and 2013, during which period the growth in lending slowed after an increase of at least 35% in the preceding year.
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