Payday lending regulations

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The Payday lending market has always been one which has courted controversy. With the astronomical rise of short-term lending since the global recession in 2008, many working class people began to find themselves in dangerous spirals of debt, in which they would borrow money to make ends meet; pay the debt off once they’d received their wages, and then find themselves short again not soon after. The interest levels were extremely high, so it wasn’t long before regulation was put into place to help to protect customers from paying exorbitant interest rates and being misled by usurious payday lending companies.

Recently, the FCA (Financial Compliance Authority) has made further regulations against Payday Lenders, in particular relation to the way they are advertised on price comparison sites. The New Standards laid out by the FCA are 70 pages long, and address concerns raised by the UK’s main competition authority in relation to fair competition in the payday loans industry.

The bone of contention stems mainly from the fact that Payday lenders can pay price comparison sites to make their services rank higher on their website, and appear to be a cheaper or more suitable option for consumers than they may be. This not only makes it unfair for other companies, but misleads customers into believing they’re getting a better deal, with a more reputable company, than they actually are.

The Competitions and Markets Authority –following an investigation into the Payday landing market- brought in legislation to ensure that Payday lenders must publish clear and accurate information about their services, prices, interest rates, fees, and other potential costs to customers, when advertising their services on price comparison websites. The Competitions and Markets Authority also ensured that Payday lenders must list their services on a price comparison website.

The FCA was quoted saying “[we intend to] require credit brokers acting as price comparison websites to rank HCSTC products in ascending order of price according to the total amount payable and to ensure that the rankings are competitively neutral and do not give products greater prominence as a result of commercial relationships”.

What this means for consumers is that when they view payday lenders on price comparison websites, they will get a more accurate summary of which are the cheapest lenders, and which will suit them the best.

However, under these same proposals, Price comparison websites will still be allowed to accept paid advertising from payday lenders, but these must be listed outside of, and separate to, the ranking tables, and not interspersed within them, giving the impression that they are of a lower price. These rules will apply to all financial promotions, including sponsored links and featured products.

The money made from advertising is the main source of income for price comparison websites of almost all types (whether it’s hotels, auction or holiday sites), for this reason, it’s not really viable for the FCA or any other regulatory body to demand that no Payday lenders can pay for advertising, as this would most likely put the price comparison websites out of business, which would actually make it more difficult for consumers to find the best deals.

The main list of results “must not be ranked according to any commercial interests and must not be given greater or lesser prominence as a result of those interests” and the FCA’s rules on financial promotions, which require those promotions to be clear, fair and not misleading, will apply.”

from Finance Girl http://www.financegirl.co.uk/payday-lending-regulations/