New rules for credit brokers to be introduced in less than one month
The Financial Conduct Authority (FCA) has announced that a series of new rules for credit brokers will be introduced from January 2 2015.
Unusually, the FCA has chosen to introduce these rules without conducting a consultation beforehand. The regulator believes it is justified in taking this step because of the very real need to protect customers from detriment.
The FCA said it had forced seven brokers to stop accepting new business, while three have been referred for enforcement action and a further 23 are under investigation.
Complaints about credit brokers to the Financial Ombudsman Service (FOS) have soared in recent months, and there have been a number of stories in the media about brokers’ activities. The FOS received 13,348 complaints about these firms in the period April to October 2014, compared to 6,376 in the entire 12 months to March 2014.
Practices these firms are said to have engaged in include: taking fees without consent, failing to provide customers with loans, passing customer details to other brokers without consent (sometimes these other brokers also charge their own fees), falsely implying that they lend money and sending unsolicited marketing messages.
Brokers operating in the payday loan market are said to be responsible for a large proportion of these issues.
From the start of 2015, new obligations for brokers of all forms of unsecured credit will include:
- To state their legal name in all advertising and other communications with customers. If they choose to state any trading names, this must be in addition to their legal name
- To state prominently in all communications that they are a broker and not a lender
- To make clear the amount of the fee to be charged (or an estimate if an exact figure is not possible), together with details of when and how the fee will be collected
- To give customers a 14 day cancellation period when applying for a ‘distance’ contract (one arranged without face-to-face interaction between broker and customer)
- To report to the FCA on a quarterly basis regarding their web domain names
If firms do not carry out each of the first three steps listed above, they will be forbidden from collecting fees or asking for payment details from customers. The information must be provided to the customer in a durable medium, such as on paper or via email, and the firm must wait for the customer to confirm receipt of this information before any fees are taken.
The FCA will consult on these new rules and on other matters related to consumer credit in January 2015, so it is possible that some of these rules could be amended at that stage.
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.”
Citizens Advice said that complaints made to it about credit brokers had more than trebled in the period July to September 2014, when compared to the same period in 2013. Its chief executive, Gillian Guy, said:
“The FCA are right to impose enforcement action and new rules as this market needs a radical clean-up of bad practice. We are concerned about unacceptable marketing and the way customers data is traded. Many are struggling to get refunds as claims go ignored and people struggle to track down the companies involved.”
Ms Guy also revealed that her organisation knew of one customer who had fees taken from their account by 19 different brokers.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.