On Monday this week, The Financial Conduct Authority (FCA) moved to introduce further rules regarding the activities of credit brokers operating in the short term lending market. The new rules came with no prior consultation, showing how serious the FCA regards the matter.
What’s a credit broker?
Generally, brokers operate through websites which offer to find loans for consumers, but a lack of clarity and disclosure on a number of sites led people to believe they were dealing direct with a lender.
The broker could then find a lender to serve the customer, but – through small print in their terms – charge that customer a fee for doing so. The customer would subsequently go through an application process with the lender and of course be liable for any fees, charges and interest levied by that lender.
The Financial Ombudsman had reported a huge rise in customer complaints about credit brokers, with twice as many cases in the six months to October 2014 as it had in the entire year previous. In fact, 80% of all consumer credit complaints related to broker activity, hence the FCA’s swift action.
As well as complaints that customers were not aware they were dealing with a broker, large numbers stated that they’d provided bank details to brokers who had taken charges from their bank account (typically between £50 and £75) and in some cases passed these bank details on to other brokers who had done the same.
The new regulations
In brief, the new rules which apply from 2 January mean a ban on credit brokers charging fees to customers and from requesting customers’ payment details, unless they meet FCA requirements. These requirements include:
- Brokers must make sure customers are given clear information about who they are dealing with
- Any fees liable to be charged must be clearly displayed
- Brokers must make clear how any fee will be payable
- Fee-charging brokers will need to notify the FCA, quarterly, of the websites they operate
- All brokers will need to include their legal name (as it appears in the FCA Register) in all advertising and all correspondence with customers
- Advertising must clearly state that the firm is a credit broker and not a lender; if the firm is a credit broker and a lender, the advertising will need to make clear they are advertising their broking services, not their lending
- There are additional rules on cancellation rights for distance contracts (for example, online credit broking) including rights to a refund
Our view on the new regulations
As a responsible lender, we’ve said before that we welcome our industry becoming FCA regulated. These new rules go even further to bringing much more clarity to the market which is great.
We’d always advise consumers against using fee-charging brokers. All short-term lenders should now be clear about their interest rates, fees and total amount payable through their websites, so if you can go direct we’d advise you do so. If you want to remove the legwork there are comparison sites available to give you side-by-side views of costs etc. but again take care to ensure that you’re using a site which won’t charge you a fee just for finding a lender.
For more information visit the Money Advice Service’s guide on credit brokers and payday loans.