Article by Ben Ryland - 22nd January 2014

Brokers Not Right For Payday Loans

Borrowers who are considering short term credit such as payday loans are being warned by the charity Citizens Advice Bureau (CAB) not to use brokers.

While our annual Banking and Credit Card Surveys have consistently shown that consumers who use brokers for mortgages get better deals and have much better experiences than those who do not, the use of brokers to find payday loans – at the other end of the credit product spectrum – appears to be blighted by a few unscrupulous brokers.

The CAB has seen a sharp increase in the number of borrowers complaining that these rogue brokers are making out to be payday lenders, leaving the borrower liable to pay an additional brokerage fee on top of the already high cost of a payday loan.

Victims often do not realise they are dealing with a 'middle man' who will levy an additional charge for use of their services. This confusion has been attributed to the brokers concerned not making it clear on websites and in text message communication that they are not the credit provider.

Typically the additional fee charged to consumers is £70.

Those complaining say they are unknowingly are hit by the surprise fee, often taken straight from the borrowers bank account without warning or permission. The CAB reports that complaints received about this practice for a one month period spanning June and July 2013. 58% of complainants had not expected a fee to be taken by a broker, and 42% believed that the broker was deceptive in not making it clear that they were not the lender of the loan. Many of the complaints also referred to significantly higher charges being made by the broker than what the consumer understood to be the charge for the service.

Gillian Guy of the CAB says, “Credit brokers should not be making people's money problems worse by charging unexpected fees. In some cases, brokers are preying on people's need for short-term credit and adding to the pain of poor payday lending by posing as a direct lender”.

“The Financial Conduct Authority 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”.

So what’s the solution for those who have mistakenly used a broker to find a payday loan?

If the loan product is not taken out the consumer can claim the broker fee to be refunded as the service has not been taken up. Sadly, the CAB reports that 28% of the cases referred to them regarding a refund of fees have been refused a refund. Further consumers have been promised a refund which has not yet materialised.

The solution is always to check that you are dealing direct with a payday lender if you need short term help. Brokers are great for finding the best mortgage deals and for helping to apply for them, but have no place with payday loans.

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