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Warning over credit brokers posing as payday lenders

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20/01/2014
Consumers are being 'ripped off' by credit brokers posing as payday lenders and charging unexpected fees, Citizens Advice has warned.

These credit brokers also pass on consumers’ details to other brokers who siphon further charges, a report by the charity said.

Typically, credit brokers do not supply loans directly to the borrower – instead they work on the customer’s behalf to find the cheapest or most appropriate loan.

Citizens Advice found that 2 in 5 people who complained about a credit broker have had 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 total £70.

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.

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.

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

Citizens Advice chief executive Gillian Guy said: “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.”

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