MSE News: Complaints about 'payday loan middlemen' soar

ombudsman warns consumers about payday loan middlemen

19 August 2014

The ombudsman today spoke out about websites that take hundreds of pounds from unwitting consumers on the promise of finding cheap credit, only for the loans never to materialise.

Since the start of the year thousands of people, many struggling financially, have contacted the ombudsman complaining that payday loan middlemen had drained money from their accounts, without providing them with the loan they were looking for.

In some of the worst cases the ombudsman has seen, consumers’ bank accounts were debited multiple times without warning – as their banking details were passed onto other credit broking websites.

The ombudsman said that so far this year (2014):

• more than 10,000 people have contacted the ombudsman to complain about credit broking websites, more than double the number in the whole of 2013;
• in the majority of cases, the business running the websites refunded the cash they had taken as soon as the ombudsman got involved; and
• in two-thirds of complaints it investigated, the ombudsman agreed that the consumer had been treated unfairly, while in the remainder of cases the fees had already been refunded.

The ombudsman also highlighted that many people who had used these websites thought they were applying for a loan directly and didn’t realise that they were paying a middleman.

These figures were released by the ombudsman today as it issued a detailed report on the handling of consumer complaints by payday lenders, highlighting the need for the sector to improve its business practices.

senior ombudsman Juliana Francis said:

It’s disappointing that people who are already struggling to make ends meet are being misled into thinking that these websites will get them a loan.

In too many of the cases we sort out, no loan is provided and people’s bank accounts have been charged a high fee, often multiple times.

If money has been taken from your account unfairly or without warning, the good news is the ombudsman is here to help. Give us a call and we can put things right quickly.

Payday loan middlemen complaints 'more than double'

Consumers have lost up to £700 as a result of using credit brokers

Complaints about payday loan middlemen - so-called credit broking websites - have more than doubled in the last year, according to new figures.

The Financial Ombudsman Service (FOS) said it had been contacted by more than 10,000 people since January this year.

In the worst cases, consumers found hundreds of pounds 'drained' from their bank accounts by the websites.

The credit brokers have previously insisted that most customers are happy with their services.

Nevertheless, one debt charity is now calling for the up-front fees they charge to be banned.

£700 bill

The credit broking sites are designed to help people find the best value loan for their needs.

“Quote

In too many of the cases we sort out, no loan is provided and people's bank accounts have been charged a high fee, often multiple times.”

Juliana Francis Senior Ombudsman


But they can also charge hefty fees.

However, according to the FOS, many consumers are unaware that they are using a broker, rather than a loan company itself.

As a result, they readily enter their bank account details.

But instead of receiving a payday loan, they are charged broking, or membership fees, of up to £100.

Banking details are often passed on to other websites, meaning that some people have been charged multiple times.

One woman was charged £70 by ten different sites, losing £700 in the process.

Ban

The FOS said that many of those affected are already struggling financially. And many never actually receive the loan they need.

"In too many of the cases we sort out, no loan is provided and people's bank accounts have been charged a high fee, often multiple times," said Juliana Francis, the senior Ombudsman.

The debt charity StepChange wants to see the practice of charging membership fees in advance made illegal.

"This is a well-known problem, but it continues to get worse," said Peter Tutton, the head of policy at StepChange.


"The time has come for government and the regulator to ban credit brokers from charging up-front fees," he added.

The industry regulator, the Financial Conduct Authority (FCA), said it was aware of the Ombudsman's report, but would not comment on any possible plans to investigate the sector.

Under rules published by the previous regulator, the Office of Fair Trading (OFT), credit brokers have to make their charges clear to consumers.

Refunds

Among the most popular credit broking sites are companies like Smart Loans, Secure my Money, and Loans Zoo.

None could be reached by the BBC.

Callers to two phone numbers previously provided by one company now hear only classical music.

However Paul Williams, a director of Click4profit, which owns Smart Loans, has previously said that most customers are satisfied with its service.

He also offered to issue refunds to anyone who is unhappy.

The Smart Loans website makes it clear that it "compares all types of consumer finance options", although readers to its front page are not warned about fees.

The FOS said that most of the websites refunded the cash as soon as they learnt that the Ombudsman was involved.

Banking details are often passed on to other websites, meaning that some people have been charged multiple times.

One woman was charged £70 by ten different sites, losing £700 in the process.