The U.K.’s competition authority said payday loan customers may be paying too much because of a lack of competition.
“The absence of price competition could be adding five to 10 pounds to the average cost of a payday loan, relative to a typical loan of 260 pounds taken out for just over three weeks,” the Competition and Markets Authority, which started operating as the lead U.K. competition body in April, said today in a statement.
The CMA said it will look at ways to increase competition, including setting up an independent price comparison website and providing clearer upfront disclosure of borrowing costs if a loan is not paid back in full and on time.
While the payday loan market increased by as much as 50 percent in 2012 to 2.8 billion pounds ($4.7 billion), the rate of growth reduced substantially in the last year, according to the CMA. The three largest lenders, including CashEuroNet UK LLC and Wonga.com Ltd., account for around 70 percent of total revenue generated from payday lending in the U.K., the competition body said.
The CMA’s report estimates suggest that total savings for U.K. customers from greater competition could be more than 45 million pounds a year.
Payday lenders typically charge high interest rates for small cash sums over shorter periods than a bank loan. The industry’s loans cost an average of 25 pounds per 100 pounds for 30 days, the Office of Fair Trading, the CMA’s predecessor, said last year.