New payday loan rules in force to help borrowers shop for best deal

New (KOSDAQ: 160550.KQ - news) rules for payday loan firms have come into force, requiring online lenders to advertise on at least one price comparison website to help borrowers find the best deal.

A link to a comparison site must also be displayed "prominently" on the websites of payday loan companies.

The move follows a 20-month investigation into the payday lending sector by the Competition and Markets Authority (CMA) in February 2015 which found a substantial gap between the cheapest and most expensive loans.

It found that a lack of price competition between lenders had led to higher costs for borrowers and many did not shop around.

This was partly because of the difficulties in accessing clear and comparable information.

The regulator also cited a lack of awareness of late fees and additional charges.

The CMA estimated borrowers could save themselves an average £60 a year by hunting down cheaper deals.

In a separate investigation, the Financial Conduct Authority (FCA) imposed a price cap on payday loans to help prevent borrowers from being ripped off.

That is already in force, set at 0.8% per day.

However, it is currently being reviewed by the City watchdog to find out if the cap is driving consumers to illegal loan sharks.

It forms part of a broader review of high-cost credit to see whether rules need to be extended to other types of loans.

Fixed default fees are currently capped at £15 to help protect borrowers struggling to repay.

The cap on interest rates on payday loans came into force in January 2015 after a chorus of concern about the industry.

MPs (BSE: MPSLTD.BO - news) and the Church of England spoke out about the impact of very high rates on vulnerable people borrowing money to tide them over until their next payday.