2015 sees the Competition and Markets Authority (CMA) take measures to increase price competition and lower payday loan costs.

According to research people rarely shop around for the best deals when it comes to payday loans, or emergency loans, therefore the Competition and Markets Authority (CMA) has taken drastic measures. The CMA has ordered all payday lenders to publish information on their products and services in an attempt to lower payday loan costs. The way that this will be facilitated is by having the lenders publish all their information on at least one price comparison website (PCW). The PCW must be authorized by the Financial Conduct Authority (FCA). According to the CMA these comparison websites should come into existence automatically, after which the FCA can take steps to make sure they are properly authorised. If this does not happen naturally, the CMA insists that the payday lenders themselves will have to build the websites themselves.

How will these Price Comparison Websites help lower payday loan costs?

First and foremost the PCW’s will promote competition. In the free market economic system price is contingent on competition. The levels of supply and demand determine the price. If a market is flooded with a product, and there are many merchants selling that same product, they will all have to keep lowering their prices in order to catch the attention of their potential customers. Because there are fewer customers than there are merchants selling the product and there is a great supply of the product itself, (like bread, for example) the price naturally falls. If there are few merchants selling a product that is scarce or rare, (like gold) the price is driven up as the demand for it is larger than the supply of the product itself. Once the payday lenders have to put all their cards on the table, they will have to get competitive, and seeing as there are so many payday lenders selling their products on the market, the costs of their loans will probably fall substantially.

Costs of immediate short-term loans, or emergency loans, will fall when lenders have to:

  • Be transparent about the charges for late re-payment and other hidden fees
  • Help customers find the loan that is best for them and the loan that will not damage their credit rating
  • Show transparency and efficiency by improving real-time data sharing with other lenders and credit check agencies
  • Make sure that intermediate websites that sell client details on to other companies explain plainly to all customers how they operate and what they are doing.