Payday lenders should face more price competition, CMA says
Payday lenders should make details of their products available to price comparison websites to encourage greater competition, the Competition and Markets Authority (CMA) has said.
It also recommends that websites selling potential borrowers' details to lenders should explain their role much more clearly.
The moves are part of a plan for reforming the controversial payday lending market set out by the CMA.
The CMA will consult on the proposals.
"Greater price competition will make a real difference to the 1.8 million payday customers in the UK," says Simon Polito, chair of the CMA's Payday Lending investigation group.
"At the moment 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."
The CMA also proposes:
- 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
- giving borrowers more information on charges they have paid on their latest loan and over the past 12 months.
The CMA says it will publish its final report "at the turn of the year".
Analysis: Kamal Ahmed, BBC business editor
The number of loans being offered by the payday loan sector is falling dramatically - by more than half according to the Consumer Finance Association.
But has demand fallen as rapidly? I doubt it.
And unmet demand can lead in one very unpleasant direction for people who might be desperate. The return of the loan shark.
In June, the CMA found that there was not enough price competition between payday lenders, meaning customers could be paying too much for their loans.
Lack of competition could be adding £30 to £60 a year to customers' bills, it found.
Economic Secretary to the Treasury Andrea Leadsom said: "The government is determined to tackle the problems in the payday lending market and protect consumers.
"We welcome the CMA's latest report in its investigation into the payday lending market. We look forward to its final report in due course."
Russell Hamblin-Boone, chief executive of the Consumer Finance Association, which represents some payday lenders, said: "These are sensible, proportionate proposals which recognise that the many people using short-term loans need the right information to make the right decisions.
"The CMA is right to draw attention to lead generators who masquerade as lenders and we agree that the FCA should investigate how these middlemen operate."
But consumer groups have responded with caution to the report.
"These proposals, alongside other reforms to the payday market, will be good news for millions of borrowers but information alone will not be the answer to the bad practices found across the credit market," said Richard Lloyd, of consumer association Which?.
"More must be done to put consumers firmly in control of their borrowing, starting with [regulator] the Financial Conduct Authority looking at the whole of the credit market and cracking down on excessive fees across all forms of credit, including unauthorised overdrafts."
Peter Tutton, head of policy at the StepChange debt charity said: "These proposals are another step towards bringing this dysfunctional market under control."
In July, another regulator, the Financial Conduct Authority, proposed putting a price cap on new payday loans from January 2015.
The FCA said that interest and fees should not exceed 0.8% per day of the amount borrowed; that fixed default fees should not exceed £15; and the overall cost of a payday loan should never exceed 100% of the amount borrowed.