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Wonga to cut third of staff following new clampdown on payday …

Wonga is slashing about a third of its workforce to cut costs as it responds to a wider clampdown on unfair practices in the payday lending market.

The controversial lender said 325 jobs would go, mainly in the UK and Ireland. Wonga’s Dublin office will close as part of the plans, as will its office in Tel Aviv.

Related: Payday lending will shrink but only a complete ban will do

Andy Haste, the lender’s chairman, said: “Wonga can no longer sustain its high cost base, which must be significantly reduced to reflect our evolving business and market.

“Regrettably, this means we’ve had to take tough but necessary decisions about the size of our workforce. We appreciate how difficult this period will be for all of our colleagues and we’ll support them throughout the consultation process.”

Wonga’s decision to cut jobs came on the same day that the Competition and Markets Authority announced new rules to force payday lenders into being more transparent about their charges. The CMA is hoping that it will create more competition in the market, lowering costs for millions of consumers who rely on the loans.

Wonga employs a total of 950 people worldwide, but all the job losses relate to its UK payday loans business, which employs 650 people – about 280 in the UK, 175 in Ireland, 185 in South Africa and 10 in Israel.

It is understood about 100 jobs will go in the UK alone. All jobs will go in Ireland and Israel.

The group is aiming to achieve overall cost savings of at least £25m over the next two years, following a period of rapid expansion that saw costs treble between 2012 and 2014.

When Haste was appointed chairman last July, he said Wonga would become smaller and less profitable as it scaled back the number of customers it extended loans to, imposing stricter lending criteria.

In October the company was forced by the City watchdog, the Financial Conduct Authority, to write off £220m of loans to 375,000 borrowers, who it admitted should never have been given loans.

Wonga also announced on Tuesday that its former chairman Robin Klein was stepping down from the board after eight years.

The payday loans industry is undergoing a major shakeup as regulators seek to make the market fairer for cash-strapped consumers.

Under the new rules announced on Tuesday, lenders will have to list their deals on price-comparison websites and make it easier for customers to compare the total cost of different loans offered by various lenders.

Payday lenders will also have to provide customers with a summary of the total cost of their loans, as well as how additional fees such as late repayment affect the cost.

The recommendations were made after a 20-month inquiry into the payday loans industry by the CMA.

The watchdog concluded that a lack of price competition between lenders had driven costs higher for borrowers, with most people failing to shop around partly owing to a lack of clear information on charges.

Simon Polito, who ran the inquiry, said: “We expect that millions of customers will continue to rely on payday loans. Most customers take out several loans a year and the total cost of paying too much for payday loans can build up over time.”

The CMA’s decision follows an earlier clampdown by the UK financial regulator, the Financial Conduct Authority (FCA).

The authority introduced a price cap on 2 January to ensure that borrowers are never forced to repay more than double the amount of their original loan.

Interest and fees were capped at 0.8% a day, lowering the cost for most borrowers, while the total cost of a loan was limited to 100% of the original sum. Default fees were to be capped at £15 to protect people struggling to repay their debts.

Polito said: “The FCA’s price cap will reduce the overall level of prices and the scale of the price differentials but we want to ensure more competition so that the cap does not simply become the benchmark price set by lenders for payday loans.

“We think costs can be driven lower and want to ensure that customers are able to take advantage of price competition to further reduce the cost of their loans. Only price competition will incentivise lenders to reduce the cost borrowers pay for their loans.”

Joanna Elson, chief executive of the Money Advice Trust charity, welcomed the action from the CMA and FCA but added a note of caution: “This is good news for the consumer. More competition and transparency in the payday loan market will ensure that the FCA’s cap on the cost of credit remains precisely that– a cap, not the norm.

“This is a good example of regulators working together to bring about meaningful change in this sector. However, these improvements in the way that payday loans are regulated must not dilute the core message that payday lending remains an extremely expensive way to borrow,” she said.

Payday lenders will be forced to publish the details of their products on at least one price comparison website, authorised by the FCA. The CMA said on Tuesday it would work closely with the FCA to implement the new recommendations.

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UK watchdog bares teeth at payday lenders | Business | DW.DE …

Britain’s competition watchdog said Thursday it wanted to launch price comparison websites for short-term lenders to help consumers shop around for better credit deals online.

The new rules are meant to stimulate competition among so-called “payday lenders,” creditors that provide quick, unsecured loans with high interest rates. They would also prevent a price cap on interest rates imposed by another consumer protection agency, the Financial Conduct Authority, from becoming the going rate charged by all lenders.

The proposal by the Competition and Markets Authority (CMA) would aim to make such lending schemes more transparent by offering debtors the opportunity to compare information between lenders, such as late fees and interest rates.

Andrea Leadsom, the financial services minister, said the government was “determined to tackle the problems in the payday lending market and protect consumers.”

Predatory lending?

Short-term lending is booming in Britain. With some 2 million borrowers, payday loans have grown into a nearly 3 billion-pound (3.8 billion euros, $4.8 billion) industry. The government in London has repeatedly criticized payday lenders for failing to carry out required credit checks meant to prevent borrowers from racking up too much debt.

“Too many people are given loans they cannot afford, and when they can’t repay are encouraged to extend them, exacerbating their financial difficulties,” a 2013 report by Britain’s Office of Fair Trading found. “This is causing real misery and hardship for a significant number of payday users.”

Last week, Britain’s biggest payday lender, Wonga, announced it would write off 330,000 customers’ debt worth some 220 million pounds after regulators forced it to overhaul its questionable lending practices. Wonga charges an annual interest rate of 5,853 percent, according to its website.

Lenders have until the end of the year to respond to the CMA’s proposal.

pad/cjc (Reuters, Competition and Markets Authority)

[…]

Payday loans shaken up by competition regulator | Business | The …

Payday lenders will be forced to give details of their products on price comparison websites to help potential borrowers shop around under new competition rules for the sector.

The Competition and Markets Authority (CMA) said payday lenders’ customers find it hard to get clear information on the cost of borrowing. Letting them compare deals online will increase competition and make it easier for new lenders to offer better prices, the CMA said.

The regulator will also require payday lenders to be clearer about their fees and charges, make it easier for borrowers to shop around without hurting their credit record, improve data sharing between lenders and oblige them to give borrowers a summary of charges.

The proposals follow a price cap announced in July by the Financial Conduct Authority (FCA) that limits repayments to no more than double the sum borrowed. The CMA said it wanted to make sure the cap did not stifle competition by setting a going rate for all lenders.

The FCA estimated that payday lenders issued 10m loans worth £2.5bn last year. The sector grew rapidly during the recession, but politicians and campaigners have attacked lenders for preying on vulnerable customers and charging high interest rates that risk their borrowing getting out of control.

Wonga, the biggest online payday lender, was ordered last week to write off £220m of loans to 375,000 people that it admitted should never have been granted. The advertising watchdog has also banned Wonga from using an advert that fails to mention its 5,853% annual interest rate.

Simon Polito, the chair of the CMA’s payday lending investigation group, said: “Greater price competition will make a real difference to the 1.8 million payday customers in the UK. At the moment there is little transparency on the cost of loans and partly as a result, borrowers don’t generally shop around and competition on price is weak.

“Lower prices from greater competition would be particularly welcome in this market. If you need to take out a payday loan because money is tight, you certainly don’t want to pay more than is necessary. Given that most customers take out several loans in a year, the total cost of paying too much for payday loans can build up over time.”

The CMA also recommended that lead generator websites selling potential borrowers’ details to lenders should be clearer about their activities. Many borrowers think the sites are lenders rather than middle-men and do not understand that they sell customers’ details to lenders for fees.

[…]

CMA sets out proposals to lower payday loan costs – Press releases …

These proposals have been developed in light of the Financial Conduct Authority’s (FCA) price cap proposals announced this July and will help ensure that the cap, which is intended to protect consumers from excessive charges, does not simply become a going rate charged by all lenders. They follow the Competition and Markets Authority’s (CMA) provisional findings into the market which were published in June (see note on research (PDF, 118KB, 2 pages) ) by the group of independent CMA panel members investigating this market.

Key to the proposals announced today are measures to encourage the development of a high quality price comparison sector for payday loans. As a condition of participation in the market, payday lenders would be required to provide details of their products on accredited price comparison websites that will allow people to make quick and accurate comparisons between loans.

This will help stimulate greater price competition in a market where many borrowers currently do not shop around – partly because of the difficulties in accessing clear and comparable information on the cost of borrowing. The development of an effective price comparison sector would make it easier for new entrants to become established and challenge existing suppliers by offering better deals for borrowers.

The CMA is recommending that lead generators (websites which sell potential borrowers’ details to lenders) are required to explain their role and how they operate much more clearly to customers. The CMA has found that many borrowers believe that lead generators are themselves actually lenders rather than simply intermediaries. Even where this is understood, there is very little transparency about the basis on which lead generators pass borrowers’ details on to lenders, so that customers are generally unaware that, rather than matching borrowers with the most suitable or cheapest loan on offer, lead generators instead sell borrowers’ details to lenders based on the fees lenders offer to them.

The CMA is also proposing a number of other measures designed to help competition work effectively in this market. These measures involve:

greater transparency on late fees and charges – which are not always clear to customers when choosing payday loans measures to help borrowers shop around without damaging their credit record further development of real-time data sharing systems, which will help new entrants better assess credit risks a requirement for lenders to provide borrowers with a summary of the charges they have paid on their most recent loan and over the previous 12 months, so that they can get a clearer picture of how much they are spending with an individual lender

In developing these measures – some of which are illustrated here (PDF, 367KB, 2 pages) – the CMA has carried out further customer research to inform the design of its remedy package and has consulted extensively with consumer groups and debt charities, lenders, intermediaries, trade associations and a range of other market participants, as well as with the FCA. The CMA now expects to work closely with the FCA, the regulator of the sector which has brought in its own measures to strengthen consumer protection for borrowers and is currently consulting on the introduction of a price cap. The CMA will now consult on its proposed measures before publishing its final report at the turn of the year.

Simon Polito, Chair of the Payday Lending Investigation Group said:

Greater price competition will make a real difference to the 1.8 million payday customers in the UK. At the moment there is little transparency on the cost of loans and partly as a result, borrowers don’t generally shop around and competition on price is weak.

By ensuring that there are accredited websites providing impartial, relevant and accurate information about payday loans, we can make it easier for customers to make comparisons and there will be a much greater incentive for lenders to offer lower cost loans and to win borrowers’ business.

Lower prices from greater competition would be particularly welcome in this market. If you need to take out a payday loan because money is tight, you certainly don’t want to pay more than is necessary. Given that most customers take out several loans in a year, the total cost of paying too much for payday loans can build up over time. Customers will also benefit from the greater clarity we want to see on late payment fees, which can be difficult to predict and which many customers don’t anticipate.

As for lead generators, we want customers to know who they are really dealing with, and the basis on which their applications are being referred to lenders, so that they can make informed choices.

This is a proportionate set of remedies, which could be introduced quickly to make the payday lending market work much more effectively. We expect to work closely with the FCA to finalise these measures which will complement its work in protecting customers and which together will provide a better deal in future for borrowers. Whilst the FCA’s price cap and its other regulatory actions to clean up the market will protect customers from some of the worst excesses, greater competition will drive prices down further and is the only way to ensure that customers are offered the best possible deals.

The CMA is also consulting on an addendum to its provisional findings setting out further analysis and evidence about lead generators collected after a change to the terms of reference in July 2014.

Moves by the FCA (see notes for editors) to strengthen consumer protection mean closer regulation of lenders over issues such as limiting rollovers, restrictions on the use of Continuous Payment Authorities to recover debt from a borrower’s bank account, carrying out proper affordability checks and sensitive treatment of debt problems. The FCA has also set out its proposals for a price cap which it is required by legislation to introduce by 2 January 2015.

The CMA’s provisional decision on remedies, the addendum to provisional findings, customer research and all other information relating to the investigation can be found on the payday lending case page. The CMA is now inviting comments in writing on the provisional decision on remedies by 5pm on Thursday 30 October 2014 either by emailing paydaylending@cma.gsi.gov.uk or writing to:

Project Manager
Payday Lending Investigation
Competition and Markets Authority
Victoria House
Southampton Row
London WC1B 4AD

Notes for editors

  1. The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the Competition Commission (CC) and the competition and certain consumer functions of the Office of Fair Trading (OFT), as amended by the Enterprise and Regulatory Reform Act 2013.
  2. The members of the Payday Lending Investigation Group are: Simon Polito (Chairman of the group), Katherine Holmes, Ray King and Tim Tutton. Read more on how market investigations are conducted. The OFT referred the payday lending market to the CC on 27 June 2013.
  3. All the CMA’s functions in market investigations are performed by inquiry groups chosen from the CMA’s panel members. In such investigations, the appointed inquiry group are the decision makers.
  4. The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business. The membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).
  5. In its provisional findings report published in June, the Payday Lending Investigation Group found that the absence of price competition could be adding £5 to £10 to the average cost of a payday loan. To put this in context, on average a typical loan has a value of £260, and is taken out for just over 3 weeks. Given that customers take out around 6 loans a year on average, a typical customer could therefore have saved between £30 and £60 per year if the market were more competitive. Some customers could be getting a worse deal still, given the size of the gap between the cheapest and most expensive deals on the market (which the CMA’s evidence suggests can exceed more than £30 for a month-long £100 loan). Given this, and the size of the payday lending sector (which has grown rapidly in recent years), the CMA provisionally concluded that the market-wide impact of greater competition could be substantial. While the FCA’s price cap will mitigate some of the harm to customers currently arising from high prices, the CMA considers that there is scope for substantive price competition to take place within the framework of the proposed price cap, leading to further reductions in price for customers. Without measures that are effective in addressing the underlying competition problems that affect this market, there will be little incentive for lenders to compete below the cap and the benefits to customers of effective competition will not be fully realised.
  6. The CMA’s proposed package of remedies comprises the following measures:
  7. measures to promote the use of effective price comparison websites, in particular a requirement for lenders to publish details of their loans on an accredited price comparison website combined with a recommendation to the FCA to establish an accreditation scheme for payday loan price comparison websites
  8. a recommendation to the FCA to take steps to improve the disclosure of late fees and other additional charges
  9. a recommendation to the FCA to take steps to help customers shop around without unduly affecting their ability to access credit
  10. a recommendation to the FCA to take further steps to promote real-time data sharing between lenders
  11. a requirement for lenders to provide customers with a summary of the total cost of the customer’s most recent loan with the lender and the total charges levied by the lender over the preceding 12 months
  12. a recommendation to the FCA to take steps to increase transparency regarding the role of lead generators
  13. Following a market investigation the CMA may take action itself, by making an order or accepting undertakings from parties. The CMA may also recommend that action be taken by others such as government, regulators and public authorities. Where the CMA makes such a recommendation, it will be for the person to whom the recommendation is addressed to decide whether to take the recommended course of action.
  14. The FCA assumed responsibility for consumer credit regulation from 1 April 2014. In October 2013, it published its detailed proposals for regulating consumer credit, including payday lending, which formed the basis of its new conduct of business for consumer credit rules now in force. Also, following an announcement in November 2013, Parliament passed legislation which places a duty on the FCA to impose a price cap on the cost of payday loans by 2 January 2015. The FCA published its proposals for the specification of the price cap on 15 June 2014 and expects to publish final details of the price cap in November 2014.
  15. The final report and all other information on the investigation are now available on the payday lending case page.
  16. Enquiries should be directed to Rory Taylor or Siobhan Allen or by ringing 020 3738 6798 or 020 3738 6460.
  17. For information on the CMA see our homepage, or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. For CMA case updates sign up to our daily email alerts.

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