Payday loan firms including Wonga are to start using a new "real-time" information sharing service about consumers' borrowing habits.
The new service is being launched by credit reference agency Callcredit to tackle concerns that lenders should have the most up-to-date and accurate snapshot of a potential borrower's circumstances when they ask for a loan (see our Payday Loans guide for details of cheaper alternatives).
Any lender that contributes to the initiative will be able to access it. Consumers will also be able to see it on their credit reports.
Lenders will begin testing the system in April, and they aim to start using it from early May. However the scheme is only voluntary.
Last December, MPs called for better sharing of up-to-date information between payday firms to stop struggling borrowers taking out multiple loans with different lenders.
MoneySavingExpert.com's founder Martin Lewis gave evidence on the payday loan industry to the the Business, Information and Skills Select Committee last November (see the MSE News story Payday lenders slammed at Select Committee).
Martin says: "This is welcome news of a start from this under-regulated, over marketed industry. Yet unless all payday lenders, including the one-off high street ones, are forced to do this, then it is still somewhat futile as it could still leave people applying for loans or payday loans, with no track of the fact that they're already over their eyes in debt from the lenders that aren't reporting their loans."
The committee said if payday lenders don't establish better ways to share information by July, then the Financial Conduct Authority (FCA), which will oversee the industry from April, should make it compulsory.
Payday loans used to pay for rent and mortgages
Today's move comes as housing charity Shelter announced survey results which estimate nearly one million people have taken out a payday loan in the past year to help cover their rent or mortgage costs.
Nearly a fifth of those surveyed (19%) said they had borrowed in some way to cover their rent or mortgage in the last 12 months, including dipping into an unauthorised overdraft, taking out a loan such as a payday loan, ramping up credit card debt or turning to family or friends for cash.
The whole payday lending industry is being investigated by the Competition Commission following concerns that some lenders base their business models around borrowers who cannot afford to pay back their loans on time.
The FCA has already outlined plans to crack down on the sector.
They include limiting the number of times payday lenders are allowed to roll over loans twice and forcing them to put "risk warnings" on their advertising (see the Payday lending crackdown MSE News story).