City watchdog clamps down on credit brokers

The rules will ban brokers from charging fees to customers unless they ensure that customers are given clear information

Credit brokers, which charge an upfront fee for passing hard-up borrowers to payday lenders, and others will face strict new rules from January.

But in a relatively unprecedented move, the Financial Conduct Authority announced the tough new regime yesterday while bypassing its standard consultation period for the credit broking industry.

It said the new rules have been made without prior consultation because the City watchdog reckons that the delay arising from the time it would take to consult would be prejudicial to the interests of consumers.

The FCA said it also believes that enforcement action alone is not sufficient to protect consumers from the poor practices identified in the market.

Martin Wheatley, chief executive of the FCA, said: “The fact that we have had to take these measures does not paint this market in a particularly good light. I hope that other firms will take note that where we see evidence of customers being treated in a blatantly unfair way, we will move quickly to protect consumers from further harm.”

From 2 January the firms must stop taking fees without permission and explain to consumers that they are not lenders but just loan arrangers.

The rules will ban brokers from charging fees to customers, and from requesting customers’ payment details for that purpose, unless they ensure that customers are given clear information about who they are dealing with, what fee will be payable, and when and how the fee will be payable.

Mike O’Connor, chief executive of StepChange debt charity said: “This will help fix a serious problem with the consumer credit market. For too long unscrupulous credit brokers have subjected borrowers to poor practices, including misleading people as to whether they are a lender or a broker, taking fees that people are unaware of, and passing on their details to other firms and lenders.”