New Regulation Expected for Payday Loan Comparison Websites
The FCA has responded to the CMA's investigation into high-cost, short-term loans. So how will it affect the market?
Payday loan comparison websites (PCWs) will have to get to get to grips with new regulation following a recent update from the Financial Conduct Authority (FCA).
The FCA has formally responded to the investigation carried out last November by the Competition and Market Authority (CMA) which is working on remedies to high-cost-short-term lending companies (HCSTS), or those offering payday loans.
This response follows the introduction of a price cap on payday loans introduced in January 2015 that limits the amount payday lenders can charge to 0.8% daily interest or £124 per £100 borrowed.
In an effort to increase competition in the industry, safeguard customer details and improve transparency, the CMA presented six remedies to improve competition:
- Enable consumers to search according to the amount and duration of loan that they require;
- Disclose on their website the extent of their market coverage by listing the number and names of the firms whose products they compare.
The consultation also addresses a number of other areas:
- The use of real-time data sharing to enable informed credit assessments;
- Measures to improve shopping around without affecting consumers’ credit ratings;
- Improved disclosure on the costs of borrowing;
- Credit broking/lead generation.
The most notable remedy encourages price comparison sites such as Quiddi Compare to display payday loan offers in ascending order of price, with the cheapest amount payable to be located at the top.
Furthermore, comparison sites ‘must not rank lenders according to commercial interests or give a greater or less prominence as a result of those interests’, the FCA said.
To avoid confusion, PCWs must also disclose in a prominent way if they are a broker or lender.
Not mentioned is that payday lenders must state clearly on their homepage that they feature on at least one price comparison site, with a link to this website.
The CMA and other PCWs have until January 2016 to respond to the update.
There is no mention of whether the same legislation will be applied for other sub-prime lenders and comparison sites that offer guarantor loans and logbook loans in the UK.