Why Payday Loan Brokers Are a Bad Idea
Warning: Late repayment can cause you serious money problems
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Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%
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Author: Internal Marketing Department
When the payday loans industry is in question, malpractices from the brokers were getting more and more common. They have been accused of asking for enormously high fees and selling other companies confidential details about their borrowers. There were also many examples where they have been withdrawing the money from borrowers’ account when they haven't even found them a suitable loan. High number of malpractices has brought the FCA attention to this matter, so FCA has taken steps to face these issues and resolve the matter.
The brokers have made thousands of attempts to rip off poor borrowers’ bank accounts only during a single month. They promise to find best deals for a loan for the borrower and for this some charge 50 to 80 pounds fee. Then they share with other lending companies all financial details of the borrower, even though these information should be confidential. In other cases the information was shared with loan matching services.
What did FCA do?
The FCA has banned some brokers from taking on any more clients, and the action is being taken on three more brokers. According to NatWest, in October 2014, a number of affected borrowers claimed that the money from their bank accounts has been regularly withdrawn, so they reported an alleged theft of their money.
With the beginning of January 2015, FCA’s new regulations came into force. The set of new rules has been applied in an attempt to force all broker websites to publish clear content, instead of tricking borrowers into paying high fees without even informing them. This FCA’s move, although welcome, was also sudden, as it was created without any consultation. This has been done due to the fact that there was no time for delaying the matter as it would just increase the number of malpractice cases, stated FCA. According to them, it all happened so fast for the benefit of the customers in order to protect all the borrowers from harm in the market, but people must stay aware and avoid getting into similar situations, as these regulations alone are insufficient to protect them if they do not take time to read what the brokers are disclosing. As long as it is possible, borrowers should go for payday loans no brokers UK offered directly by lenders that are legitimate.
The new regulations block the payday loan brokers from charging borrowers any fees without providing them with a prescribed notice AND getting their consent. It only allows them to ask them for their bank details only if they follow the new rules, which bind them to have complete transparency regarding the process with their customers. They are also obliged to let the customers know the amount of fee and the date when its payable before-hand.
So, what are the new regulations?
The new set of regulations is as follows:
- The brokers must always use their legal name identical to the name registered in the Financial Services Register when they are dealing with a customer or advertising, and also in all types of communications;
- If they are ONLY a broker they must state they are a payday loans broker in their ads and may not state they are the direct lender;
- The brokers are mandatory to make it clear to their customers in what cases will the fee be payable and when and when and how much will the fee be charged.
- The brokers that charge fees to the clients are mandatory to submit the details of their websites to the FCA every quarter;
- The clients have the right to cancel within 14 days and get their fee back if they hire a broker through phone or online;
These regulations that the FCA set against the brokers are the latest thing that happened in payday industry after the regulation of the lenders themselves. One of the new rules that came into effect stated that payday loan lenders are not allowed to charge more than 0.8% interest per day and a lot is expected from this rule. The fact that FCA put this new rule into effect means it is thought that 4 out of 5 brokers, who have been taking large fees from their clients are expected to either close down or cease charging a fee to the customer for their service. If we are discussing the reason for these implementations, we surely can find it in the fact that over 40% of the consumers’ credit complaints that FCA and FOS received were regarding the brokers. Besides of that, the FCA got the relevant intelligence information from the consumer groups, but also other people who have been reporting several brokers for withdrawing money from their accounts on regular basis.
Brokers and payday loan matching services often ask the borrowers to share their bank details, although they were not yet guaranteed to be found a payday loan. This mostly leaded to unplanned bank withdrawals on the borrower’s bank account, made by the brokers and other firms. Numerous customers also reported receiving threat calls from alleged collectors who threatened them to pay back the debt, despite of never owing anything. Because of all this it is strongly advised for the borrowers to go for payday loans no brokers UK directly from the lenders.
This just shows the vulnerability of the payday industry. The borrowers got into big financial troubles only because the brokers use malpractices to put their hands on the money. Hence going to a broker to ask for a loan that will help you get through your financial crisis might lead you into an even bigger one if you run into a corrupted broker.
What should the borrowers do?
So, it is necessary that the borrowers are always at alert, educated and aware of malpractices like this. While the FCA will be carefully watching that their regulations are followed and hit firms that don't hard, the will still be brokers out there that have not yet been caught. If you need a payday loan, before going to a broker or a loan matching service see if you can get payday loans no brokers UK from direct lenders and be certain you will not have to pay extra fees to brokers.
Be sure that you avoid the fake websites and brokers. Do a research on the website before applying on it and, just to be on the safe side, only lenders regulated by the FCA should be used.