The UK's competition watchdog has floated the possibility of an independent price comparison website for payday lenders after concluding that Brits are over-paying for their loans.
Preliminary findings from a Competition and Markets Authority (CMA) investigation into the industry suggests that a lack of competition is adding up to £10 to a typical loan of £260 taken out for just over three weeks.
The CMA estimates that greater competition could save customers more than £45 million a year, relative to total revenue earned by payday lenders of around £1.1 billion.
The popularity of UK payday lending has risen dramatically in recent years. In 2012 1.8 million people took out 10.2 million loans worth £2.8 billion, an increase of up to 50% on the previous year.
There are at least 90 firms scrabbling to grab a slice of this rapidly growing pie yet the three biggest players - CashEuroNet, Dollar and Wonga - account for around 70% of total revenue.
To help promote competition and drive down prices, the CMA will now look at the establishment of an independent price comparison website. It also wants clearer upfront disclosure of borrowing costs if a loan is not paid back in full and on time, as well as greater transparency about the role played by lead generators.
Simon Polito, chairman, payday lending investigation group, CMA, says: "Given the problems with price competition, we believe that the creation of an independent price comparison website is a particularly important option - as those that exist at the moment suffer from a number of limitations and are only used by a small proportion of borrowers."
Payday lenders are already facing tougher regulations after coming under the remit of the new FCA, while the government is considering a cap on the costs of loans.