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UK seeks comparison sites for payday lenders

London - Britain's competition watchdog wants to introduce price comparison websites for short-term lenders like Wonga to provide clear information on the cost of such loans and encourage customers to shop around.

Regulators and policymakers have been clamping down on so-called "payday lenders", after critics including the Church of England said the high level of interest they charge tips households into a deepening spiral of debt.

Wonga, Britain's biggest payday lender, charges an annual interest rate of 5 853%, according to its website. The firm said last week it was writing off the debt of 330 000 customers worth about £220m, after being forced to overhaul its lending practices.

READ: Wonga writes off debt for 330 000 customers

A comparison website would ensure a price cap set to be imposed on the industry did not become the default rate for lenders, the Competition and Markets Authority (CMA) said on Thursday.

Payday lenders would be required to provide details of their products on websites that would allow borrowers to make quick and accurate comparisons between loans, the CMA said.

The watchdog said that would stimulate greater price competition in a market which serves 1.8 million customers and where many customers currently do not shop around - partly because of the difficulty in finding clear information on the cost of borrowing.

It has also called for greater transparency around the role of intermediaries, who sell potential borrowers' details to lenders, after it found many customers mistook the so-called "lead generators" for the lenders themselves.

Customers were generally unaware that rather than match borrowers to the most suitable loan, these intermediaries pass customers' details to lenders based on the fees they themselves would receive, the CMA said.

The lenders and other interested parties have until the end of this year to respond to the CMA's proposal.

"Sensible" proposals

The Consumer Finance Association (CFA), a representative body for short-term lenders, backed the recommendations.

"These are sensible, proportionate proposals which recognise that the many people using short-term loans need the right information to make the right decisions," CFA chief executive Russell Hamblin-Boone said.

Britain's Financial Ombudsman said that it had received 20% more complaints about payday lenders so far this year than in the same period last year and in the majority of cases had sided with the customer.

"We regularly hear from people whose debt is keeping them awake at night, they took out a payday loan as a desperate last resort and their debt problems have got worse instead of better," the Ombudsman said in a statement.

Andrea Leadsom, a member of the government with responsibilities for financial services, said on Thursday the government was "determined to tackle the problems in the payday lending market and protect consumers".

The CMA said it was talking to existing price comparison websites about its proposal.

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