British payday lenders must publish the costs of their loans on comparison websites so consumers can shop for the best deals, the U.K.’s Competition and Markets Authority (CMA) announced on Tuesday (Feb. 24).
New rules from the CMA also require payday lenders to give current and future borrowers a loan summary that explains the total cost of loans, as well as clear explanations of fees and hidden costs.
The new rules, which come after a 20-month investigation by the CMA, will now go to the U.K.’s Financial Conduct Authority, which is expected to begin enforcing them starting this summer. The FCA has already capped payday loan rates at a maximum rate of 0.8 percent per day, to keep the loan’s cost to less than twice the amount originally borrowed.
“The FCA’s price cap will reduce the overall level of prices and the scale of the price differentials, but we want to ensure more competition so that the cap does not simply become the benchmark price set by lenders for payday loans,” said Simon Polito, chair of the CMA’s Payday Lending Investigation Group in a prepared statement. “We think costs can be driven lower and want to ensure that customers are able to take advantage of price competition to further reduce the cost of their loans. Only price competition will incentivize lenders to reduce the cost borrowers pay for their loans.”
Price comparisons aren’t currently available for payday lenders in the U.K. The CMA said it has already discussed hosting the comparisons with groups that already offer comparisons of prices for other consumer goods and services. If none of them take on the task, the payday lenders will have to launch a site that would need to be approved by the FCA.
The CMA also recommended that the FCA take steps to help customers shop around without damaging their ability to access credit, improve real-time data sharing between lenders and credit reference agencies, and ensure that lead generators explain how they operate much more clearly to customers. Lead generators are websites that sell potential borrowers’ details to lenders, and they’re the way 40 percent of first-time online borrowers in the U.K. get their loans.