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Watchdog insists payday loan customers 'could be £60 better off'

Photo: PA

Payday loans customers could soon be up to £60 a year better off if a series of measures put forward by an influential watchdog are adopted, it has emerged.

The Competition and Markets Authority (CMA) wants the controversial industry to become more competitive and make it easier for customers to shop around for the best deals.

Wonga recently had an advertisement banned because it was not clear on fees. Credit: PA

Wonga, the most recognisable payday lender, wrote off £220 million worth of debt earlier this week.

However, expunging the debt only cost Wonga £35 million. The remaining £185 million was interest racked up by the debt remaining unpaid.

The CMA has previously estimated that collectively, the UK's payday loan customers would be £45 million a year better off if the market were more competitive.

A lack of accessible credit, unclear fees and charges and limited ways to compare price have all made it harder for payday loan customers to find the cheapest deal, the CMA said.

Credit: REUTERS/Suzanne Plunkett

The CMA has also suggested that the role of lead generators, which act as middlemen matching payday lenders with borrowers, should be made clearer to consumers. It said that often, the generator's role is not made clear on websites, meaning consumers may mistakenly believe that a lead generator is a payday lender.

Payday lenders are also now obliged to place "health warnings" on their advertising, telling consumers: "Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk."

In some of the worst cases seen by regulators, payday customers have previously been allowed to roll over a loan around a dozen times.

According to short-term lending trade body the Consumer Finance Association, which represents firms including the Money Shop and Quick Quid, 54% fewer loans are being granted and the number of loans being rolled over is down by 75% since the Financial Conduct Authority (FCA) imposed new rules in April.