The complaint handling body for financial services – The Financial Ombudsman Service (FOS) – have released year to date figures showing that credit broker fees remain a huge problem in the UK market. Complaints about broker fees have risen by well over 100% versus last year, with a staggering 10,000 received in just the last 7 months.
Done properly, a credit brokerage performs a very useful service by helping applicants sift through a myriad of products and lenders to hone in on the 1 or 2 that match the applicant’s needs. In the traditional model the broker is paid a commission by the lender if, and only if, the applicant actually takes out a loan. Effectively the broker is only paid if the applicant is satisfied.
The problem comes with some nefarious firms who are using the credit broker model to place applicants with potential lenders but charging the applicant an upfront fee for the service. This potentially takes away any incentive to actually find the applicant a loan, instead encouraging the broker to focus on collecting more and more fees. The methods to achieve this can range from the ‘slightly grey’ to the downright dirty – with some brokers passing themselves off as lenders in order to get applicants’ card details.
The confusion can lead to applicants getting duped by multiple sites before they realise or, even worse, have their card details handed around to other sites who also take their ‘fee’. The end result can be several hundred pounds racked up in fees by people who can ill afford it.
The Consumer Credit Act allows brokers to charge an upfront fee but also requires them to refund all but £5 if they fail to find the applicant a loan. All well and good, if you can get hold of them! FOS has found at least 2 examples of complaint phone numbers only connecting to hold music.
The traditional model of being paid a commission after a loan has paid out does have its flaws. Brokers can do a good job in matching the client to a lender only to find the client decides not to take out the loan, leaving them out of pocket. The model has also been accused of encouraging brokers to prioritise the lenders who pay the most commission rather than who is best for the applicant – but the rules on Treating Customers Fairly are rigorously enforced and commissions across the product types are fairly standard.
Although the rules exist to try to ensure that fees for unsuccessful applications are refunded, they’re much more difficult to enforce. Which is why Stepchange, the debt advice charity, are leading the calls for an outright ban on upfront broker fees with Peter Tutton (their policy chief) stating,
“This is a well-known problem and it is getting worse”.
Well known it certainly is. In 2011 the Citizens Advice Bureau launched a super-complaint about credit fees as a result of the large number of cases it was seeing. In June that year the Office of Fair Trading (the OFT), the then regulator, announced a series of measures aimed at solving the problem. According to FOS’ latest figures the OFT failed – consumers can only hope that its replacement, the FCA, has sharper teeth.