Warning over payday loan brokers

Posted by Michael Bolt in Banking on 10 November 2014 - Michael worked as a Credit Analyst at checkmyfile until 2015

Consumers are being urged to be wary of a new generation of payday loan middlemen, who are making attempts to target the bank accounts of some of the poorest and vulnerable members of society. As many as one million attempts per month are being made by payday loan brokers to take funds from people who may be unaware that they would be charged for the service they offer.

Payday loan brokers offer an online service promising to find loans for consumers but crucially are not lenders themselves. The brokers charge an often hidden fee for offering to find the best payday loan for consumers. They typically charge a fee of around £50 to £75 to do this, although fees are often levied up to three or four times. Customers are often unaware that they will be charged or that they had even given their consent for a payment to be made. In the worst cases, brokers have shared the individual’s bank details with as many as 200 other companies, some of which then also attempt to levy charges.

The payday loan broker practices have caused alarm at one of the UK’s biggest high street banks, Natwest. It has received hundreds of new complaints on a daily basis about payday loan brokers. Between July and August it was receiving up to 640 complaints a day about the brokers, although this has since fallen to around 250 per day. It has concerns that this figure could increase in the run-up to Christmas.

The industry regulator, the Financial Conduct Authority (FCA), is thought to be investigating the conduct of the brokers. It has received some 11,500 complaints about payday loan brokers since April, more than double the total number received in the whole of last year.

The Financial Ombudsman says that many people using the brokers websites thought that they were applying for a loan directly, did not realise that they were paying a middleman and that they would not necessarily receive a loan. It has urged consumers to remain vigilant.

Some brokers involved in finding loans for consumers make their charges clear, such as My Loan Now, although others are more opaque. The Competition and Markets Authority (CMA) is considering compelling brokers and lead generators to be clearer on their website, by clearly outlining that they are not lenders.

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