Newspaper article The Journal (Newcastle, England)

Pay Day Lender Probe over Lack of Competition; YOUR MONEY Loans Industry Could Be Shaken Up in Wake of Watchdog's New Investigation, Writes Vicky Shaw

Newspaper article The Journal (Newcastle, England)

Pay Day Lender Probe over Lack of Competition; YOUR MONEY Loans Industry Could Be Shaken Up in Wake of Watchdog's New Investigation, Writes Vicky Shaw

Article excerpt

THE PS2.8billion payday loans industry is undergoing an investigation to discover what benefits consumers could gain if certain steps were taken to inject more competition into the market.

While the full report won't be out until later this year, the Competition and Markets Authority (CMA), which is carrying out the probe, has just released a snapshot of the problems it''s uncovered - and what it proposes to do about them.

The watchdog estimates the typical payday loan customer pays up to PS60 a year over the odds due to a lack of price competition in the industry. Part of the problem is that borrowers often focus on how quickly they can get the cash rather than the overall cost. To make it easier for people to shop around to get the best deal, the watchdog is proposing that an independent price comparison website should be set up. This would present someone looking for a short-term loan with a table of possible lenders and the overall costs involved.

The CMA also suggests lenders should be forced to clearly tell a customer up front what the total cost will be if they fail to pay back their loan on time and give out periodic statements showing the long-term cost of their debt.

Other possible measures include clamping down on lead generators. These are "middlemen" who sell customer applications to the highest bidder. Some customers mistakenly believe they are actually the loan provider.

The CMA is therefore proposing that lead generators should explicitly spell out their commercial relationship with lenders.

The size of the payday loan sector has grown so rapidly in recent years that the total savings from implementing these changes could collectively save consumers more than PS45 million a year.

Whatever is decided in the final report, the one thing that seems clear is that consumers' need for short-term loans isn't going to die down any time soon.

Simon Polito, chairman of the payday lending investigation group and CMA deputy panel chairman, said: "Short-term loans like these meet a very clear need for around 1.8 million customers a year.

"This level of demand isn't going to go away so it's important to ensure this market works better for consumers. …

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