The Financial Conduct Authority has published their response to the Competition and Market Authority payday lending investigation. The FCA said it had “worked closely with the CMA” regarding the market investigation. The consultation paper is accepting feedback until January 28th, 2016. The proposal by the FCA recommends additional standards for price comparison sites to promote “shopping around” and additional disclosure of fees can charges which may impact consumers. The response was based in part on findings from an earlier report where they concluded that there are features of the UK payday lending market which prevent, restrict or distort competition, leading to an adverse effect on competition.
The Payday Lending sector provides an alternative for some consumers who do not qualify for other types of direct lending platforms. Typically Payday lenders offer loans at very high rates to consumers who can least afford the expense.
In February 2015, the CMA recommended that price comparison sites:
- rank products in ascending order of price according to the Total Amount Payable and not give products greater prominence as a result of commercial relationships
- ensure any additional advertising on PCWs for HCSTC is outside the ranking tables and not interspersed with it
- enable consumers to search according to the amount and duration of loan that they require, and
- disclose on their website the extent of their market coverage by listing the number and names of the firms whose products they compare.
The FCA has suggested other areas to address;
- 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, and
- credit broking/lead generation.
The comments by the FCA follow closely on a recent case that highlights some of the problems in the Payday lending market.
Dollar, a payday lender, was told to provide £15.4 million in refunds to 147,000 customers. The FCA review revealed that many customers were lent more than they could afford to repay. Dollar has since agreed to make a number of changes to its lending criteria in order to meet the FCA’s requirements for high-cost short-term lenders.
“The FCA expects all credit providers to carry out proper checks to ensure that borrowers don’t take on more than they can afford to pay back. We are encouraged that Dollar is committed to putting things right for its customers,” said Jonathan Davidson, Director of Supervision – Retail and Authorisations at the FCA.