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Credit brokers ‘posing’ as payday lenders to cash-in on fees

20 January 2014

Cash-strapped consumers are being ripped off by credit brokers who are charging unexpected fees for organising loans, passing bank details onto other brokers who siphon further charges and in some cases are ‘posing’ as payday lenders .

New figures from Citizens Advice finds 2 in 5 people who complained about a credit broker have problems with up-front fees.  

Of those, 58% were charged unexpected fees.  The other 42% were subject to deceptive practices including charging much higher fees than agreed, fees for services they never signed up to and pretending to be a lender instead of a broker.  The fees charged can be as much as £70.  

Citizens Advice, which celebrates its 75th anniversary this year, is urging MPs to discuss the issue of credit brokers as part of its debate on payday loan companies today (Monday 20 January). The new evidence from the consumer body suggests these firms are cashing in on the demand for short-term credit and some are ‘posing’ as payday lenders.  

Often consumers believe they are dealing directly with a payday loan company because websites or marketing text messages from some brokers do not make it clear they are a broker. Borrowers are then hit with an unexpected fee and in some cases don’t actually go on to get a loan.  

The new data is from an analysis of 490 problems reported to the Citizens Advice consumer service in England and Wales about credit brokers during June and July 2013.   

A fifth of consumers who complained to the Citizens Advice consumer service had their card details passed onto other brokers without their knowledge and 19% had not applied for a loan. Some people had not even completed the application process but still found their cards being charged.

Based on the analysis Citizens Advice estimates 3,000 problems with credit brokers were reported to the consumer service each year. The consumer body believes many more people are having problems with these services without realising they’re dealing with a credit broker.

A young woman sought help from her local Citizens Advice Bureau after she applied for a payday loan and within seconds was inundated with texts from other payday loan companies. She contacted two or three of them but decided not to take out a loan. Over the next few days she found that several sums had been taken from her bank account by different brokers, despite the fact that no loan had been given.

Citizens Advice evidence finds that, while fees are refundable if a loan isn’t taken out, borrowers are finding themselves up against a brick wall when they try to get their money back.  Citizens Advice analysis of 228 cases where the customer attempted a refund reveals:

  • 28% were refused
  • 14% were promised a refund but never get it
  • 42% struggled to get in touch with their broker to get a refund.

Citizens Advice is calling on the Financial Conduct Authority, which takes on regulation for consumer credit in April, to take an equally tough stance against credit brokers as it is doing for payday loans.  

Citizens Advice Chief Executive Gillian Guy said:

“Credit brokers should not be making people’s money problems worse by charging unexpected fees.  In some cases, brokers are preying on people’s need for short-term credit and adding to the pain of poor payday lending by posing as a direct lender.

“For many people money is really stretched during January and this could lead to more and more people considering taking out payday loans.  Anyone who is finding it a struggle should get advice first and be wary about providing any details online to firms that could be brokers.

“Credit brokers must be transparent about the service they offer and any fees they charge.  The FCA needs to recognise the harm menaces in this industry can cause and come down hard on those who break the rules.  Preventing unscrupulous brokers from entering the market in the first place, through a strict authorisation process is essential.  The FCA should also be seriously concerned about the prevalence of data sharing among brokers as money is being siphoned from people’s bank account without clear permission.”

Notes to editors:

  1. The Citizens Advice service comprises a network of local bureaux, all of which are independent charities, the Citizens Advice consumer service and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more see the Citizens Advice website.
  2. The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.
  3. To find your local bureau in England and Wales, visit citizensadvice.org.uk. You can also get advice online at adviceguide.org.uk
  4. You can get consumer advice from the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 for Welsh language speakers
  5. Citizens Advice Bureaux in England and Wales advised 2.3 million clients on 5.4 million problems from October 2013 to September 2014. For full 2013/2014  service statistics see our quarterly publication Advice trends
  6. Citizens Advice service staff are supported by more than 21,000 trained volunteers, working at over 3,000 service outlets across England and Wales.