The Competition and Markets Authority put out its provisional findings of a review into the payday lending market, and said the absence of price competition could be adding
"Given that customers take out around six loans a year on average, a typical customer could save between
The investigation comes amid recent strong criticism of payday lenders by politicians and consumer groups, who say the interest rates charged by the lenders are extortionate and customers could be treated badly if they get into arrears. The companies counter that they are providing a service that banks don't currently provide, and the vast majority of clients pay little interest because they pay off the short-term loans quickly.
Payday loans are supposed to be very short-term loans that tie people over until they next get paid.
"The size of the payday lending sector, which has grown rapidly in recent years, suggests the market-wide impact of greater competition could be substantial: the CMA's indicative estimates suggest that total savings for
It estimates that there were around 1.8 million payday loan customers in the
The CMA said it will now look at ways that price competition can be increased, including establishing a price comparison website, clearer upfront disclosure of borrowing costs if a loan isn't paid back on time, and requiring greater transparency about the role played by lead generators.
'We found that 40% of new online borrowers take out their first loan with a lender via a lead generator, but the way in which these companies earn their money - by selling customer applications to the highest bidder - is often not made clear on their websites and some customers are unaware that these companies are not actually providing the loan,"
"We want customers to know who they are really dealing with, and the basis on which their applications are being matched with lenders, so that they can make informed choices," he added.
The CMA said the changes would work alongside changes being made by consumer credit regulator, the
'We now want to look at what measures will work most effectively in helping to tackle the issues we have identified. Given the problems with price competition, we believe that the creation of an independent price comparison website is a particularly important option - as those that exist at the moment suffer from a number of limitations and are only used by a small proportion of borrowers," Polito said.
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