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Beware of Payday loan brokers

What are credit brokers?

Credit brokers are firms that 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.

What are the problems with credit brokers?

  • Some firms have not made it clear to customers that they are credit brokers. A trick they use is their websites might have implied they are a lender who can provide a loan direct.
  • Others don't make it clear that they would charge a fee for their services, or how much this would be.
  • Some brokers took payments from consumers' bank accounts, without permission, and without providing the service they had promised.
  • People are unaware they were actually signing up for a credit broking service.
  • Bank details were given 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.
  • Some credit brokers would pass personal details on to other credit brokers without the customer's knowledge or consent. As a result people would then find that other firms 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 a complaint was raised people often found it difficult to contact the firm, or were given excuses for why a refund could not be given. In these situations the law actually dictates that 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.

Below are the most common complaints related to payday loan brokers.

Disguised as lenders:

In many cases, people are unaware that they are dealing with a broker. Usually, brokers mislead the borrowers into believing that they are the original lenders. Because of this, borrowers unknowingly give away their bank account and debit card details to such brokers.

High commission charges:

Brokers charge a fee to consumers with the promise of providing the best payday loan deals. The fee is usually two to three times of the lenders' fees or around £50 to £75 per deal. If there is more than one middleman involved, borrowers may have to pay these fees multiple times.

However, these commission charges are entirely unnecessary and those who want a payday loan can get them directly from lenders without incurring any extra fees.

Taking money without providing the loan:

There have been complaints where brokers have pulled money from bank accounts of the borrowers, without even providing a loan. In some cases, the bank accounts were drained multiple times because the details were passed from one middleman to another. In many cases, borrowers were not aware they had given authority to brokers to withdraw money from their accounts.

Example: A woman's account was debited 20 times for brokerage charges, with an amount of £70 deducted each time. She ended up paying £1,400, and didn't even get the loan she wanted.

Deductions after midnight:

This is a really crafty move by the brokers who deduct money between midnight and 3 am, the time when state benefits payments, such as unemployment or disability benefits are credited to accounts. You will literally wake up in the morning to find payday loan brokers have already taken all the benefits money away.

Protection from the law against credit brokers

FCA rules require all credit brokers to make it clear who they are and what service they're offering. In addition, credit brokers are not 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) that clearly states:

  • 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
  • That they intend to charge you a fee
  • The amount of the fee
  • How and when the fee will be charged

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 £5 and this is covered under Section 155 of the Consumer Credit Act