The Financial Conduct Authority (FCA) announced on 1st December 2014 that it was banning credit brokers from charging fees to customers from January 2nd 2015 unless they comply with a strict set of conditions. Credit brokers are middlemen – they don’t lend money themselves. They can offer to find any length of loan but much the most common target is payday lending.
This action is an unusual move for the FCA, which normally consults on changes before introducing them. Martin Wheatley, chief executive of the FCA, explained:
The fact that we have had to take these measures does not paint this market in a particularly good light. I hope that other firms will take note that where we see evidence of customers being treated in a blatantly unfair way, we will move quickly to protect consumers from further harm.
Why the FCA has acted so rapidly
Consumers often haven’t realised they are dealing with a loan broker rather than a payday lender, as the website or advertising hasn’t made this clear. It is often difficult to find terms and conditions, which can be misleading.
Customers have sometimes given their bank details thinking this was to help the broker find them a payday loan. Instead, they have been charged an upfront fee by the broker, even though no loan may be arranged. And in the worst cases, the customer’s details have been passed on to other brokers, who have also charged fees, so the customer may have a series of deductions from their bank account from firms they have never heard of.
The numbers of these problems have been escalating this year. Since April over 40% of consumer credit complaints received by the FCA have been about credit brokers. NatWest said in October that it was seeing up to 640 complaints a day from customers saying that money, usually £50 to £75, has been taken from their accounts by companies they don’t recognise who are payday loan brokers. Customers have sometimes found it hard to identify these firms let alone get refunds from them.
New rules for loan brokers
In January, the FCA’s new rules will mean that credit brokers:
- are not allowed to charge fees to customers, or requesting customers’ payment details for that purpose, unless they comply with new requirements ensuring that customers are given clear information about who they are dealing with, what fee will be payable, and when and how the fee will be payable;
- must include their legal name, not just their trading name, in all advertising and communications with customers;
- have to state prominently in all advertising that they are a credit broker and not a lender; and
- will have to report quarterly to the FCA listing their website domain names, if they charge fees to customers.
Consumers will also have a 14-day right of cancellation where credit broking contracts are entered into as distance contracts, for example online.
Have you had money taken unfairly?
Rule changes next year may sound too late if you have already had problems, but the Financial Ombudsman can still get you compensation this year. They say:
If money has been taken from your account unfairly or without warning, the good news is the ombudsman is here to help. Give us a call and we can put things right quickly.
The Financial Ombudsman has had over 10,000 cases involving loan brokers this year so far. In most of them, brokers have been refunding money to customers as soon as the ombudsman gets involved, and in most of the rest the Ombudsman found in the customer’s favour. So phone them on 0300 123 9 123.