Citizens Advice Scotland have called for financial regulators to investigate the way credit brokers operate when referring people to lenders.
Their call comes as a new report by the Competitions and Markets Authority (CMA) says that many payday lenders are not competitive, and that many online credit brokers are referring clients to the lender who will give them the biggest profit –regardless of whether that lender offers the best deal for the client.
Fraser Sutherland, Policy Officer at Citizens Advice Scotland, says:
“The Scottish CAB service continues to see thousands of people who get into huge debts to payday lenders. For the last few years we have been identifying major problems with the way that some lenders operate, and exposing their repeated failure to get their own house in order or to stick to their own code of conduct.
“This new report reveals even more problems with the payday lending market in that not only are their charges unclear, punitive and unaffordable, but they have now been shown to be anti-competitive and hiding the real cost for consumers.
“But the report also finds that many online brokers are at fault too. For example, instead of sending customers to the cheapest deal for them - as you would expect from a proper credit broker - many rogue brokers are instead ‘auctioning’ the customer off to the lenders who will give the broker the biggest profit.
“We urge the Financial Conduct Authority to look into this. There are many brokers who do operate fairly, but clearly any broker who is ‘auctioning’ their clients off in this way is failing in the most basic test set by the regulator to treat customers fairly. People who go to a broker to get the best deal should never find themselves actually getting the worst deal because the broker is selling them off to the highest bidder.
“This all confirms the warnings that we and other consumer groups give to people. Don’t borrow money at all unless you really have to, and if you are in that position, get advice to help you choose the lending options that are right for you. Expert money advice is always available free from your local CAB.”