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The Financial Conduct Authority (FCA) says brokers aren’t being clear and transparent enough with borrowers, and that some brokers are taking fees from their clients without their informed consent – sometimes after misleading them into handing over their payment details.
The new ban on fees, along with other new guidelines, will protect customers by making sure they know exactly what they’re signing up for when they use a brokerage service.
Back in May, we found out about this problem first hand when aggrieved customers of credit broker, Loansupermarket.net, called the MoneySuperMarket call centre by mistake to complain about money unexpectedly leaving their bank account. We explained the company was nothing to do with us but, feeling angry on their behalf and wanting to help, we directed them to the following information.
Here’s a look at what this all means for borrowers.
What triggered the ban?
A credit broker arranges a credit agreement (such as a loan) on your behalf, dealing with banks, building societies and other financial institutions.
The FCA has some serious concerns about the way these brokers operate, namely:
- A lack of transparency which means consumers often don’t realise they’re dealing with a broker rather than a lender
- Fees are being taken without informed consent – because of hidden or misleading T’s & C’s
- Borrowers are being misled as to why brokers need their payment details
- Brokers are passing on consumers’ details (including payment details) without informed consent, to other firms who also take a fee
- Borrowers find it hard to identify the firm that has taken a fee, and face difficulties getting a refund or response to a complaint
“The FCA is actually investigating a number of brokers over the whole thing”
And it’s not just the FCA taking notice. The Financial Ombudsman took 13,348 complaints about credit broking between April 1 and October 31 this year. In 63% of the cases it investigated, the consumer won the complaint.
Among all the complaints it received, the Ombudsman said the common themes were that borrowers didn’t recognise the business which took the fee, they did not give permission for a fee to be taken, and they thought the fee was taken as payment towards a loan – mistaking the broker for a lender.
But good news – as the FCA has now imposed strict guidelines to make sure borrowers get a fair deal. From today, brokers will have to:
- Include their legal name, not just their trading name, in all advertising and other communications with customers
- Plainly and prominently state that they are a credit broker and not a lender
- Plainly state that a fee will or may be payable, and the amount or likely amount of the fee
- Plainly state how and when the fee will be payable
- Report quarterly to the FCA listing their website domain names, if they charge fees to customers
- Borrowers are also being given a 14-day right to cancel when they enter into a contract with a broker under distance selling conditions – for example, online.
The FCA is actually investigating a number of brokers over the whole thing. Seven firms have been stopped from taking on new business, while three further cases have been referred for ‘enforcement action’.
Martin Wheatley, chief executive of the FCA, said: “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.”
Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.