Credit brokers and payday loans
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 offer a service to find the best loan for you by looking at what’s available on the market. Many credit brokers run their business online through websites. They usually 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 and they have been charging unauthorised fees for services they haven’t provided.
These fees were often charged after people gave their bank details to the credit broker because they thought they were:
- Applying directly for a payday loan
- Confirming their identity
- Being asked for a credit check
They were unaware they were actually signing up for a credit broking service.
Once someone had given their personal details, some credit brokers would pass them on to other credit brokers, often without the customer’s knowledge or consent. People would then find that these credit brokers had also charged fees for services that had not been provided.
Another problem has been that not all credit brokers charging unauthorised fees were registered with the Financial Conduct Authority (FCA). Or they were trading under another name to their legal name.
This has made it difficult for a customer to complain and get their money back when they realised that unauthorised fees had been taken from their bank account.
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.
Bear in mind the interest rates on pay day loans are high and 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.
Find out what you need to know about pay day loans.
Find out where to get free debt advice.
How to stop credit brokers taking unauthorised payments
Cancel the credit broking service
If you have signed up to a credit broking service online and decide you no longer want it you have 14 days to cancel, under the Financial Services (Distance Marketing) Regulations 2004.
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.
If you have a problem getting a refund, you can complain about the credit broker to the Financial Ombudsman consumer service.
Contact your bank your bank to stop payments
If the credit broker has already started taking regular payments, it is likely that you have agreed to a Continuous Payment Authority (CPA). The payment taken by this method won’t show as a direct debit or standing order on your account.
You should first ask the credit broker to cancel the CPA. If they don’t do this, you can ask your bank or building society to cancel the CPA and stop further payments. Your bank should comply with your request. If they refuse, you should insist they cancel the CPA because it is your legal right to use your bank to cancel the instruction.
If you have a problem using your bank to cancel a CPA, you use their formal complaints procedure to complain. If you are unhappy with the outcome of the complaint you can complain to the Financial Ombudsman.
How to check if a credit broker is authorised by the FCA
Before you use a credit broking service you should check the firm is authorised. You can do this by checking the FCA consumer register.
Check the FCA Consumer Credit Register.
Check the FCA Financial Services Register.
If a credit broker isn’t authorised by the FCA
If the credit broker isn’t authorised by the FCA, you can take your complaint to Trading Standards.
Or you can contact Action Fraud which deals with fraud and financially motivated internet crime.
To find out more go to the Action Fraud website.
Trading Standards and Action Fraud will usually not be able to take on individual complaints or get compensation for you. However, they are able to take action against the credit broker if there is evidence of wrong doing.
How the law protects you from credit brokers
From 2 January 2015 the law protects you from being charged unauthorised fees and requires the credit broker to make it clear what service they are offering.
Credit brokers will not be allowed to charge you fees or take payment details unless they follow FCA rules. If you visit a credit broker’s website or they send you any information it should be clearly stated:
- What the firm’s legal name is and not just their trading name
- That the firm is (or acting as) a credit broker and not a lender
- How much any fees will be
- How the fees will be charged and when you will have to pay them.
Before you are charged a fee, the credit broker must send you information in writing (or by email) confirming all these details and ask you to acknowledge that you have received it.