New rules are now in force that require all payday lenders to list their products on at least one price comparison site, and the site or sites they choose must also be regulated by the Financial Conduct Authority (FCA). The requirement was first announced back in August 2015 following an investigation by the competition watchdog, the Competition and Markets Authority (CMA), but it only came into force in May of this year.
Lenders must also include on their websites a prominent link to their chosen price comparison site. Wonga, the best-known name in the marketplace, has chosen a site called Choose Wisely to list its offering.
The new requirement will hopefully allow consumers to easily compare the interest and other fees being charged by different lenders, and the CMA also hopes that the move will also facilitate the entry into the marketplace of smaller payday lenders, who can then compete effectively with the larger, more established firms.
The CMA has estimated that the lack of competition within the industry is costing payday loan borrowers an average of £60 per year.
The information lenders must now provide on price comparison sites includes:
• The amount payable in interest, fees and charges, and how these payments will be structured
• The minimum and maximum loan durations that are available
• The incremental lengths of a loan that are available
• The minimum and maximum loan values
• The increments by which loan values can be increased
• The fees and charges for late or missed payments
• The effects of repaying a loan early
• Any other relevant information that would allow a consumer to work out the total cost of a loan
The FCA is currently reviewing the payday loan price cap, which came into force in January 2015. At present, all loans offered by firms who meet the FCA’s definition of ‘high cost short-term credit’, interest are capped at 0.8% per day. This means that a customer borrowing £100 for 30 days and who repays on time cannot be asked to pay more than £24 in interest. No matter how many times a loan is rolled over, or how late the repayments are made, no borrower can ever be asked to repay more in interest and charges than the amount of their loan. The maximum default fee is £15.
Complaints about payday loans have also been increasing significantly. The Financial Ombudsman Service (FOS) will shortly publish its annual review for the 12 months to March 31 2017, but its figures for the year to March 2016 showed a 178% increase in payday loan complaints when compared to the year to March 2015. The FOS is also upholding around two-thirds of the complaints it receives about this type of product.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.