Payday lenders face competition reform in bid to win consumers a better deal

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PAYDAY LENDERS are facing another potential clampdown today when a watchdog will set out how the sector should be reformed to inject more competition into the market.

The Competition and Markets Authority (CMA), which is making the announcement, has already estimated that a typical payday loan customer could be up to £60 a year better off if measures were put in place to make it easier for them to shop around.

It will set out a provisional decision today on what remedies it thinks should be applied to the £2.8bn industry. There will then be a further consultation before the watchdog produces a concrete set of plans in a final report around the turn of the year.

The CMA has previously estimated that collectively, the UK’s payday loan customers would be £45m a year better off if the market were more competitive.

A general lack of access to credit elsewhere, unclear fees and charges levied on payday loan products and a shortage of ways to effectively compare prices all combine to make it hard for payday loan customers in particular to find the cheapest deals, it has found.

In June, the watchdog suggested various potential ways that competition could be improved, including the setting up of an independent price comparison website that payday loan customers can use to compare overall loan costs more easily, forcing lenders to spell out the full cost of defaulting on a loan more clearly up front and making lenders send out periodic statements to borrowers showing the long-term cost of their loan.

The CMA has also suggested the role of lead generators, which act as middlemen matching payday lenders with borrowers, should be made clearer to consumers.

The latest findings will come at a time when the under-fire payday lending sector is already undergoing a huge overhaul, since it started to be regulated by the Financial Conduct Authority in April.