If you are looking for a payday loan, using a credit broker to find one could cost you money in unnecessary fees. This page tells you more about what you should think about before you use a credit broker to find a payday loan.
What are credit brokers?
Credit brokers are firms which can help find you a loan, for example because you have a poor credit history.
Some credit brokers operate online through websites and specialise in payday loans and other high-cost, short-term credit.
Some are paid commission by lenders, but others charge a fee for their services.
Why have there been problems with some credit brokers?
Some firms have not made it clear to customers that they are a credit broker - their websites may have implied they are a lender who can provide a loan direct.
Others didn’t make it clear that they would charge a fee for their services, or how much this would be.
Whilst some took payments from consumers’ bank accounts, without permission, and without providing the service they had promised.
Often people were unaware they were actually signing up for a credit broking service.
They gave their bank details because they were told this was to confirm their identity, or to allow the lender to make a credit check.
They did not realise that money would be taken from their account.
Once someone had given their personal details, some credit brokers would pass these on to other credit brokers, also without the customer’s knowledge or consent.
People would then find that these credit brokers had also charged fees.
In many cases, the customer had several fees taken from their account, but did not end up with a loan.
When they complained, they often found it difficult to contact the firm, or were given excuses for why a refund could not be given – even though by law the customer was often entitled to their money back.
Some of these credit brokers were not registered with the Financial Conduct Authority (FCA) or were trading illegally under a different name.
Should you use a credit broker to find a payday loan?
You don’t need to use a credit broker to search for a payday loan. It is quite easy to compare the market yourself.
For example, by visiting the websites of individual lenders, or using a price comparison website.
You can ask lenders for a quote, showing how much it will cost to borrow the amount of money you want, over the period you want - this will b e shown as the ‘total amount payable’/
Also, think carefully before going for a payday loan. Bear in mind the interest rates are high and the debt can quickly spiral out of control.
If you are unable to pay back the loan within the agreed period you could end up deeper in debt.
You should look seriously at other options for borrowing or seek free debt advice before you consider a payday loan.
There are many other ways to borrow money or repay debts that will cost you a lot less in the long run.
How to stop credit brokers taking unauthorised payments
Cancel the credit broking service
If you have signed up to a credit broking service online or by phone, and decide you no longer want it, you can cancel and ask for your money back.
This is under the FCA’s distance marketing rules - but you have to cancel within 14 days.
You don’t have to give a reason why you want to cancel and the credit broker should refund any fees you have paid within 30 days.
It can only retain part of the fee if it has actually provided you with a service during the period before you cancel.
If you have a problem getting a refund, you can complain about the credit broker to the Financial Ombudsman consumer service.
If you have given payment details to the credit broker, you might have agreed to a Continuous Payment Authority (CPA) - even if you didn’t realise it.
A CPA allows a company to take money from your bank account.
You can cancel the CPA by telling the credit broker or asking your bank or building society to stop further payments.
Your bank should comply with this - but you need to act quickly, ideally before the money comes out.
If a fee has already been taken without your permission, ask the bank for a refund.
If the bank refuses, you can use their formal complaints procedure to complain.
If you are unhappy with the outcome you can complain to the Financial Ombudsman.
How to check if a credit broker is authorised
Before you use a credit broking service you should check the firm is authorised with the FCA.
You can do this by checking the FCA consumer register:
If a credit broker isn’t authorised by the FCA
If the credit broker isn’t authorised, you can notify Trading Standards or notify the FCA’s customer helpline.
They won’t be able to take on individual complaints, or get compensation for you, but they can take action against the credit broker if there is evidence of wrong doing
Or you can contact Action Fraud which deals with fraud and financially motivated internet crime.
To find out more go to the Action Fraud websiteopens in new window.
How the law protects you from credit brokers
Since January 2015 there have been additional protections in the FCA rules.
These require all credit brokers to make it clear who they are and what service they’re offering.
In addition, credit brokers are not be allowed to charge you a fee or take payment details unless they have first provided you with an information notice, in writing (or by email) which clearly states:
- That they intend to charge you a fee
- The amount of the fee
- How and when the feel will be charged
- The firm’s legal name (and not just their trading name)
- That the firm is (or is acting as) a credit broker and not a lender
They can only charge you a fee or pass payment details to another person, if you have acknowledged (in writing or email) that you have received this notice.
If you do decide to go ahead, and the broker does not get you a loan (within six months) they have to refund the fee less than £5 - this is under Section 155 of the Consumer Credit Act.
They should tell you about this when you sign up.