Scots who want to take out a payday loan are being ripped off by online ‘credit brokers’ before they even get to apply for the loan - according to a new report published today (Wednesday) by Citizens Advice Scotland.
Credit brokers are the ‘middle men,’ whose role is to put consumers in touch with payday lenders. Over the last year we have seen growing evidence that many brokers do not make it clear that they are not the lender. Rogue brokers often charge unexpected fees for very little service, pass on your personal details to other companies, and refuse to provide refunds when you challenge them.
Our evidence today shows that we have seen an increase of over 40% of such cases reported to our consumer helpline (03454 040506) in the last year. Most of these involve people on low incomes who are seeking a loan in desperation because they can’t make ends meet, so many of them are pushed into financial crisis by these hidden brokers fee - before they even get to the stage of actually applying for a loan.
WHAT DOES OUR REPORT SAY?
In 2013/14 there were 254 cases of rogue credit brokers reported to Citizens Advice Scotland’s consumer helpline. Analysis of these cases finds the following major issues:
- Hidden Fees. Most of the brokers had charged a fee for their service, without making this clear. The average fee is around £70, with many customers only finding out when they checked their bank balance later.
- Passing on personal details: In 71 of these cases, the broker passed the customer’s personal details on to other brokers. In these cases, on average, more than four different brokers took fees costing the consumer an average of £264 with no guarantee of a loan.
- Refusal to provide refunds: In 55 cases, a consumer was denied a refund despite asking for one within the 14 days allowed under law.
- Misleading advertising: A review of the main credit broker websites by CAS found that 4 out of 10 did not make it sufficiently clear to consumers that they were a broker service who did not offer direct loans.
- Links to Payday Lenders. The whole point of credit brokers is they are supposed to be impartial, and to refer you to a lender who suits your circumstances. But in many of the cases we see the broker have links to certain lenders and simply refer clients to these lenders, regardless of whether it suits the customer or not.
Publishing the report, Citizens Advice Scotland’s Head of Policy Susan McPhee says,
“It’s bad enough that so many people are falling into debt through the actions of some payday lenders – which of course remains a big issue. But this trend is something on top of that, which is leading people into financial hardship before they even take out the payday loan.
“A lot of credit brokers provide a legitimate service – searching the market on your behalf to find a lender who suits your circumstances. However, it’s clear from our evidence that many brokers are in fact exploiting consumers, taking money off them without their knowledge.
“We’ve seen a 42% in Scots coming to our consumer helpline about this issue in the last year – and even more come into their local CAB office in person. The issues we see include hidden fees, mis-selling and unclear terms and conditions. Some brokers will not only exploit you themselves but will then pass your details on to other companies who can take further money from your bank account.
“Our advice to anyone who is searching online for a payday loan is to be very cautious and read the small print of any website you deal with. Sometimes you are not dealing with a lender but with a broker, who will charge you a fee before they even pass you on to the lender, so you will then have to pay this fee in addition to whatever interest you get on your loan. The only way to avoid this is to read the small print very carefully, and never give your bank details until you know exactly who you are dealing with and what you are getting into.
“If you think you have unfairly lost money to a broker, then get in touch with us and we will see if we can help you get your money back. You can get our free impartial confidential help at any CAB, or via our consumer helpline 03454 040506.”
CAS are also making a number of recommendations to legislators and regulators to crack down on these practices. These are listed in the attached report, and below.
CAS RECOMMENDATIONS FOR CHANGE
1. The CMA’s recommendation of the creation of a comprehensive and independent price comparison website to allow customers to make comparisons on the cost of a loan should be implemented
2. The FCA review whether the auction process used by credit brokers meets the needs of consumers or is breaking rules and take action if this is the case
3. All advertising and web content of a credit broker should explicitly state that they are a broker rather than a lender, the fee that they charge, the refund policy of the company, the address and contact details of the company, and their policies on sharing personal details
4. The practice of sharing personal details between credit brokers without explicit and informed customer consent should be prohibited, with action taken against brokers by the FCA who do so
5. Credit brokers should be required to offer refunds within 14 days of the agreement if requested by the consumer, with action taken against brokers who fail to do so.
6. Lenders should review the relationships they have with lead generators and refuse to take leads from brokers which they find to act in a manner below their own standards of customer service.
Notes to editors - click to expand/collapse
Our report includes a number of case studies. These are listed below. We hope to have some others who are willing to be interviewed/photographed etc. We don’t have any of these yet, but will try and get some for later in the day.
Ø A West of Scotland CAB reports of a client who applied for a loan online through a credit broker. Part of the agreement was that they could pass his details to other companies. The client has now had cash amounts from 23 loan firms taken from his account totaling almost £900. The client has contacted these loan firms, most of which have not been responded to his request for a refund.
Ø The CAS Consumer Helpline Service reports of a client who has discovered that a credit broker has passed on her details to other brokers. Two brokers, whom the client has not heard of, have taken payments totalling £145 from her account. The client complained to the credit broker who directed the client to their terms and conditions which state they pass details on to other brokers who all take fees for trying to find a loan.
Ø A North of Scotland CAB reports of a client who has incurred fees from 15 different brokers, with a total cost to date of over £800. The client believes this came about when he recently repaid a loan early. At that point the loan company offered the client an additional loan of £15k, to which the client initially agreed, but later cancelled. It appears the loan company/broker has passed on the client’s details to other loan companies, which has resulted in these fees. The client is in receipt of sickness and disability benefits and all of his benefit payments have been taken up by these fees. The client has had his phone cut off as he couldn’t afford the bill and is struggling to afford utilities.
Ø The CAS Consumer Helpline Service reports of a client who feels that she was misled into signing up to a credit broker. The client was browsing the internet looking for a payday loan when she completed what she thought was an application form for a loan. When she pressed the enter button, the client was transferred to a different website and was shocked to read a message saying that £40 had been taken from her account. The client called the company who insisted that the client had signed up to their terms and conditions.
Ø The CAS Consumer Helpline Service reports of a client who tried to apply for a payday loan online after getting into financial difficulty. The page appeared to redirect the client after filling out all of her details including debit card information. This redirection happened about five times and the client assumed this was a technical fault. However, the client then found that five different brokers had taken fees ranging from £47 to £67. The client had been on the same website the whole time and was not informed that any of the forms were for other brokers.
Ø The CAS Consumer Helpline Service reports of a client who was cold called by a credit broker offering a loan. The client asked them if they were a direct lender as she had previously been charged by brokers and didn’t want to use this service. The caller stated that they were a direct lender. The client gave her bank details as she thought she was going to receive a loan. At the end of the call, the broker stated that there would be a £40 fee, at which point the client stated that she did not want to proceed. However, the broker took the fee regardless.
Ø The CAS Consumer Helpline Service reports of a client who was misled by a credit broker into entering an agreement. The client tried to apply for a £1,000 loan online and immediately received a call from the broker. They asked for the client’s card details in order to verify that the client had a UK bank account and stated that they would take 50 pence from the account. The broker immediately took £79 from the account. The client did not receive a loan and had been told that he cannot get a refund.
Ø The CAS Consumer Helpline Service reports of a client who is struggling to get a refund from a credit broker. The client had almost £70 taken from his account and was told that this would be refunded within 7 days after he complained. The client waited and nothing came back. He was then told that he would be refunded within 30 days, but again nothing was forthcoming. The client feels that he is now just being given random timescales.
Ø The CAS Consumer Helpline Service reports of a client who enquired about a loan online and has had money taken out of his account by a number of brokers. The client wants a refund but cannot get through to the broker on the phone. Each time he gets through, the operators claim to be busy then disconnect the call.
Ø A South of Scotland CAB reports of a client with two children, who has been charged £636 by 11 different loan companies to organise a loan of £500. The client applied for a £500 loan from two different loan companies who shared the client’s details with a number of other companies. The client only realized that money had been taken from her account when she was told that she only had £7 left in her account even though her Income Support payment of £320 had just been paid in. The client was then due to be paid Child Tax Credit but was told by her bank that she couldn’t withdraw any money as there were pending transactions from more loan companies. The client has no money for food or heating, and no loan has been offered.
Ø A West of Scotland CAB reports of a single parent who gave her details on a website thinking that she was applying for a payday loan, when in fact it was a credit broker. The client has now found the company has taken £68.50 in administration charges from her account, from her benefit payments of £172. The client is a single parent to two sons and is struggling to feed the whole family. The client has been referred to the foodbank before and has already had three crisis grants from the Scottish Welfare Fund. The client was very emotional and upset.