Why payday loan credit brokers should now be more reputable.
We are a credit broker and not a lender. Well in fact, although what we do is officially termed ‘credit brokerage’, we are more a loan matching service than what many would see as providing the full credit brokerage service.
When someone applies for a loan we take their details and decided which of our panel of lenders and other brokers may be able to help. We then offer the application to each in turn until one says that they will consider it further, we then redirect the applicant to that lenders site to continue with the lending process. We do not charge the applicant a penny for this, however we do get paid a commission by the accepting lender.
So, the title of the article is about being more reputable. What is detailed above seems quite straightforward and honest, so what could be not reputable about it?
We are only getting to this position in regards to being ‘reputable’ because of some fairly major rules brought in by the Financial Conduct Authority (FCA) since they took over regulation in 2014. We need to look at the types of things that were happening before this to understand how we have evolved to this position.
When you are using the full services of a mortgage broker or main stream credit broker then you may expect to pay them a fee. After all, they will do a reasonable amount of work in preparing and submitting the application, along with other elements of the process. Also, this fee, in respect of the overall amount that is being borrowed, is a relatively small percentage.
Before FCA regulations, it was not uncommon for some brokers to charge £40 - £70 as a brokerage fee. Not only did the fact that you were applying for a payday loan indicate that you didn’t have an excess of funds, but when you were only after perhaps as little as a £100 loan, that was a horrific percentage of what you were actually borrowing. Additionally, this did not guarantee that you would get the loan – although you would still be charged.
To make matters worse, the ‘fee’ was often well hidden in the brokers T&C. Many thought that they were entering their debit card details to be used to repay the loan. They became quite surprised when the fee was debited, often several days later.
Another issue here was in regards to refunds. The regulations have always said that you can ask for a refund of all but £5 of the broker fee if they did not successfully obtain you a loan. This was not widely publicised and some brokers made the process of applying for such a refund very difficult.
Since the FCA has introduced new rules making the fee charging brokers provide a formal notice that the fees would be charged AND get the applicants explicit consent to pay them, fee charging brokerage for payday loans has all but disappeared.
There are brokers, there are lenders and there are those who do both. Some people prefer a direct lender, where they can evaluate all of the terms and rates before applying. Others prefer to fill in one application and it get sent to multiple lenders until one is found. There is no right or wrong in which is chosen, but the right to choose should not be taken away from the applicant.
If you look at a website previous to the FCA’s rule on ‘brokerage warnings’ then you would struggle to determine whether it was a broker or a direct lender.
Not only was it not made obvious, but in many cases brokers were trying to hide this fact and make users think they were direct lenders. Terms such as ‘our loans’, ‘our rates’ were common as were references to ‘we will carry out a credit search’ or ‘we transfer the funds in as little as X minutes’. I could go on with examples, but suffice to say these sites were deliberate ‘dressed’ to be seen as a lender.
For those that wanted to keep their application confined to a lender, or lenders, of their choice, the first that they knew that they had applied with a broker was when they suddenly arrived on the ‘real’ lenders site. Or worse still were emailed by a number of lenders who had been offered the application to review.
Again, in stepped the FCA and stated that any site that is solely a credit broker MUST make it clear to the user that this site is operating as a credit broker and not a direct lender. Where the owner of a site is a direct lender AND a credit broker, but only operating a specific site as a broker, they too must state that they are a broker and a direct lender, but that this site is providing their services as a broker and not a lender
This may explain why you are seeing more and more references to this when you visit short term loan websites.
The FCA have a Principle that demands that the firms it regulates Treats Customers Fairly (TCF). This has had a large impact on the order that lenders are offered the lead. In days gone by many loan matchers would offer the application in the order of who paid them the most commission. This may mean that the customer was sent to a very expensive lender, when a cheaper one was available who would take the loan.
Under TCF the broker must now be able to justify to the FCA that the order it sequences the lenders is in fact the fairest on the applicant. This may not be solely related to the interest rates charged, but may include reputation, late fees, complaints and acceptance rates. It cannot however simply place the highest paying lender at the top.
So as these 3 examples show, since the FCA took over many of the less reputable practices that some brokers employed have now been outlawed and the whole brokerage process has been cleaned up.
I hope that you have found this article both informative and enjoyable.
Warning: Late repayment can cause you serious money problems - For help, go to moneyadviceservice.org.uk
This article contains information about products/services offered by us as well as those that we do not offer.
Author: Internal Compliance Department