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Payday lenders lack competition


The Payday loans market lacks competition and is resulting in many customers paying more than they need to, according to the Competition and Markets Authority (CMA).

The CMA found that this lack of competition could be resulting in a typical customer’s annual bill increasing by around £30 to £60.

The regulators will need to look at the possibility of implementing various solutions to the problem, one of which could be to establish an independent price comparison website as well as forcing lenders to give clearer disclosure on borrowing costs.

Simon Polito, chairman of the CMA said that those who have to take out a payday loan because their finances are tight “certainly shouldn’t have to pay more than is necessary”.

He continued to say: “In some cases, those borrowers paying the extra costs are the ones who can afford it the least. This can particularly apply to late payment fees, which can be difficult to predict and which many customers don’t anticipate.”

More transparent

The CMA said that as a result of the investigations, payday lenders may have to become more transparent.

Mr Polito spoke of how borrowers usually take out their first payday loan, with up to 40% of these doing so via a lead generation website.

However, he said: “The way in which these companies earn their money – by selling customer applications to the highest bidder – is often not made clear on the websites and some companies are not actually providing the loan”.

A typical loan of £260 over a three week period could cost an extra £5 to £10 because of a lack of competition according to the CMA. When taking into consideration the average customer takes out six loans a year, a typical customer could make an annual saving of £30 to £60.

The CMA added that “some customers may be getting a worse deal still, given that the gap between the most expensive deals for a month-long £100 loan is more than £30.”

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