It is a sad but inescapable truth that over the last 5 years many more Brokers have switched to charging an upfront fee for their service – rather than relying on the traditional back-end commission payment from the lender. Customers presented with this option should remember that the broker is effectively asking to be paid upfront for the work they’re about to do, rather than being paid based on results by the lender.
Thankfully the Financial Conduct Authority introduced tighter regulations at the start of this year which made the charging of upfront broker fees more difficult and ensured the customer know exactly what they were getting in to – the detail of the new regulations can be found here.
However, if you’re looking for a Broker to work with you need to be aware of a new version of this charge, the membership fee. Some brokers offer their customers the ‘opportunity’ to become a member of their club, charging a membership fee in return for a collection of ‘benefits’. This will often be presented early on in the application process and there are few important things to consider when presented with this option.
Whichever way you cut it, and whatever’s included in the package, remember that you called the broker to help them find you a loan. Signing up for a package of benefits isn’t going to help you achieve that goal (see later) so ask yourself why a loan Broker is offering you membership to a club that provides you with other benefits. If the broker does their job well and finds you a loan then they’ll get paid by the lender – ask the company how much commission they receive for every membership package sold.
The broker may well try to explain to you the ‘great’ range of benefits available through their membership scheme. Firstly, ask for details then do a bit of online research yourself – can you find these offers available anywhere else? You may find that the company offering these benefits is offering them through a number of different channels, many of which won’t need you to pay an upfront fee.
Secondly, ask yourself whether you really want or need the things included in the membership fee – remember that you called them up looking for a loan, don’t get suckered into joining a club for benefits that you’ll never use.
Never fall for the line that members of their ‘club’ are more likely to get their loan approved by the lenders. The lenders’ decision as to whether they’ll offer you a loan is based on your own personal circumstances. 15 years in this market and I’ve never come across a lender who only offers their product to people who’ve joined a ‘special’ club.
It will be interesting to see how the regulator, the FCA, views these membership-style fees. I’m sure the brokers who are involved would argue that these are completely different from broker fees but the FCA may take a different view. This could be particularly worrying for lenders, because if the FCA view them as a fee then they should be included in the lender’s cost of credit – if they’re not the credit agreement could be invalid.
Thankfully there are brokers out there who have NEVER charged an upfront fee or membership fee and NEVER will – and we should know because we’re one of them (see our No Fee Loans page). Our loan experts are available to answer any questions you have on the products available so you can make the right choice for you. IF we successfully find you a loan AND you decide to go ahead and take that loan out, then we’ll get paid a commission by the lender. That’s the way we think it should be.