Call for clarity on payday loans costs
Payday lenders could be forced to spell out the overall cost of defaulting on a loan more clearly up front and an independent price comparison website could be set up to help people shop around after a watchdog found an "absence of price competition".
The Competition and Markets Authority (CMA) suggested the possible remedies after finding that a payday customer could typically save around £30 to £60 per year if the market were more competitive.
The CMA's estimates suggest that collectively, UK payday loan customers would be £45m a year better off if there were better competition across the market.
Simon Polito, chairman of the payday lending investigation group and CMA deputy panel chairman, said: "If you need to take out a payday loan because money is tight, you certainly shouldn't have to pay more than is necessary.
"While the average income of payday lending customers is similar to that of the overall population, their access to other credit options is often limited when they are taking out a payday loan and 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."
He said the provisional findings suggest that payday lending customers tend to focus more on the availability and speed of a loan over the cost, and even for people who do try to shop around there is a "lack of transparency on additional fees and charges" as well as a shortage of ways to compare prices.
The CMA found that the gap between the cost of borrowing £100 for a month when comparing the cheapest and most expensive deals on the market is more than £30.
A lack of price competition could be adding between £5 and £10 on to the average size of a payday loan, which is £260, borrowed over three weeks. A typical customer could save between £30 and £60 a year if more competition were injected into the market.