How payday loan comparison will happen
ONLINE payday lenders must publish details of their products on at least one price comparison website that's approved by the Financial Conduct Authority.
That's the headline from the Competition and Markets Authority's final report [pdf], following their 20-month-long investigation into the sector.
The lenders will have to provide the comparison sites with "clear, objective and comparable information on all loan costs", particularly the total amount customers will have to pay back.
Customers should also be able to compare payday loans according to how much they want to borrow and how long for.
The small print
The full list of "relevant information" lenders must provide to the FCA-approved price comparison website (PCW) of their choice is as follows:
- the structure and amount of interest and other fees and charges;
- minimum and maximum loan durations, and available incremental lengths of a loan
- minimum and maximum loan values, and the increments by which they can be increased
- how repayments are structured
- how fees and interest are structured, and how much they are, for late or missing payments
- what effect early repayment has
- any other information required to allow users to work out the total amount payable for any given loan
- "such other information as may be required by the FCA" once they've implemented any additional standards
All very important, but hardly likely to grab the attention of someone looking for a loan as quickly and easily as possible.
It's worth bearing in mind here that the CMA did find out about what people looked at when seeking a payday loan on a comparison site.
Research carried out for them by TNS showed people looked at the total amount payable and the APR, but many went for a name they recognised, or were guided by branding or the position of a lender in the list they were presented with.
Crucially, users didn't really notice that they could reorder a comparison list according to different cost criteria, or question the order of the loans on the list when first presented with them.
TNS also found that lots of people went to a lender's website direct.
So the CMA want all online payday companies to prominently display links to at least one FCA-authorised PCW where their loans are listed, or to a portal containing a list of all such PCWs offering payday loan comparison.
Just in case...
We've reported previously on the fact that payday lenders themselves could be required to set up their own PCW if one fitting the bill doesn't exist - or ask an FCA-approved credit broker to do it for them.
Once that's set up, they have three months to get their details on there. If they don't, they won't be allowed to enter into any loan agreements with UK customers, with some exceptions.
Should a payday company be able to prove to the CMA that they've been "unreasonably excluded" from every FCA-approved PCW, they'll be allowed to continue issuing loans, and don't have to link to those nasty sites refusing to link back.
They can also continue to issue loans during the period that they submit their case to the CMA, and while the CMA investigates the matter.
A running total
In the meantime, both online and high street lenders must provide their existing customers with summaries of the cost of their borrowing.
As well as including the total cost of their most recent loan, the summary will show borrowers how much in total they've spent on borrowing with that lender in the past 12 months.
It'll also show the charges or other costs they've incurred as result of late payment.
Anyone who wants to take out a fresh loan with the same lender must also be made aware of the summary of their previous borrowing.
Again, this is useful and important, but perhaps not the top of a potential borrower's priorities when looking for a new loan.
The "final order" comes not even a week after Enova International, who trade as Pounds to Pocket and QuickQuid, told investors they'd seen a 20% increase in loan volumes from the first to second quarters of this year.
Enova are one of the three biggest providers of high cost short term credit in the UK, alongside The Money Shop and Wonga.
Wonga's woes in the past year have been well documented, but it was widely predicted that all three would survive the FCA clampdown, perhaps a little chastened.
According to The Mail On Sunday, Enova's chief executive David Fisher told investors, "we feel really good about our position, both competitive and regulatory."
The FCA say that around 250 lenders have applied for provisional licensing. None have been refused, but the FCA say the full authorisation process could take from six to 12 months.
That, they say, means some could be found unfit to continue, while others may decide to stop trading before the process is complete.
Take, for example, the debt management sector.
Despite the apparent obviousness of the guidelines regarding debt management practises, they've already had to take action against a frighteningly large number of organisations dealing with debt.
Others have voluntarily stopped trading in the face of stricter rules and the prospect of not getting full authorisation.
Whether this turns out to be the case with payday lenders - and whether the CMA's insistence on price comparison makes them genuinely more competitive for users - remains to be seen, but we're not holding our breath.