Fees threat to credit brokers

An investigation carried out by the Office of Fair Trading (OFT) found a large number of sub-prime credit brokers were taking money from consumers but were not providing them with the service they had promised.

In 45 per cent of cases, sub-prime brokers had taken fees averaging £50 to £70 but failed to help customers get a loan, while in a further 36 per cent of instances they had offered consumers a loan that was different to the one they were expecting, with it often being for a smaller amount, offered over a shorter period, or charging a much higher APR.

The OFT said a number of brokers even had business models that were based on taking upfront fees for services they were unlikely to provide.

There was also evidence that brokers were failing to pay refunds when consumers were entitled to them, with two-thirds of people who should have received their money back not getting it.

The OFT has produced new credit brokerage guidance pointing out that consumers may have a right to a refund of any fees they have paid if the broker does not introduce them to a lender. It also expects brokers to advise customers who have not taken out a loan six months after being introduced to a lender, that they are entitled to a refund of their fee.

The OFT will also scrutinise brokers’ business models, and warned that it would revoke or refuse credit licences to firms who planned to take fees without providing a service.

It estimates that 270,000 consumers paid an upfront fee to a sub-prime credit broker during the past 12 months.