New FCA rules tackle credit broking fees

The rules will ban credit brokers from charging fees to customers, and from requesting customers’ payment details for that purpose, unless they comply with new requirements ensuring that customers are given clear information about who they are dealing with, what fee will be payable, and when and how the fee will be payable. The rules come into force on 2 January 2015.                                                 

Martin Wheatley, chief executive of the Financial Conduct Authority, says:

“The fact that we have had to take these measures does not paint this market in a particularly good light. I hope that other firms will take note that where we see evidence of customers being treated in a blatantly unfair way, we will move quickly to protect consumers from further harm.”

The new rules have been made without prior consultation because the FCA considers that the delay arising from the time it would take to consult would be prejudicial to the interests of consumers. The FCA also believes that enforcement action alone is not sufficient to protect consumers from the poor practices identified in the market.

The FCA’s concerns relate to:

- a lack of transparency, resulting in consumers often not realising they are dealing with a broker rather than a lender;
- fees being taken without informed consent, for example where terms and conditions are hidden or misleading;
- consumers being misled as to the purpose of giving their payment details;
- firms passing on consumers’ details, including their payment details, without informed consent, to other firms who also take a fee; and
- consumers facing difficulty in identifying the firm that has taken a fee, and in obtaining a refund from the firm or a response to their complaint.

Today’s announcement is part of a package of measures which will also require credit brokers to include their legal name, not just their trading name, in all advertising and other communications with customers, state prominently in all advertising that they are a credit broker and not a lender, and report quarterly to the FCA listing their website domain names, if they charge fees to customers.

Consumers will also have a 14-day right of cancellation where credit broking contracts are entered into as distance contracts, for example online.

Over 40% of consumer credit complaints received by the FCA relate to credit brokers, 80% of which relate to firms who charge upfront fees. The FCA has also received relevant intelligence from consumer groups and others who are seeing increasing complaints from people who have had money taken from their accounts unexpectedly and often by more than one broker.

The FCA is investigating a number of credit broking firms; seven firms have been stopped from taking on new business and, to date, three further cases have been referred for enforcement action.

Mike O’Connor, Chief Executive of StepChange Debt Charity, said:

“This will help fix a serious problem with the consumer credit market. For too long unscrupulous credit brokers have subjected borrowers to poor practices, including misleading people as to whether they are a lender or a broker, taking fees that a people are unaware of, and passing on individuals’ details to other firms and lenders.

“Ensuring greater transparency for consumers will address detriment in this market.  However, we remain concerned that brokers will still retain the ability to take upfront fees without ever delivering a loan, and we would urge the FCA to ban this practice.”