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#462443 'Credit brokers' pretend to be the actual lender and add hidden layer of extra fees, charity says

Credit brokers are preying on cash-strapped borrowers by "posing" as payday lenders and charging unexpected fees for organising loans, according to evidence compiled by Citizens Advice.

The debt advice charity said consumers were being charged set-up costs of £70 on top of the expense of taking out a payday loan – and in some cases brokers were siphoning cash away from people's bank accounts without their clear permission.

Citizens Advice warned that borrowers using a broker often believed they were dealing directly with a payday loan company because websites and texts from some brokers did not make this clear. Borrowers are then hit with an unexpected fee for arranging the loan.

The charity analysed 490 complaints reported to it about credit brokers between June and July 2013.

Two fifths of cases involved the upfront fees charged by these "middlemen" firms. Of these, 58pc of cases involved people being hit with unexpected fees and the remaining 42pc involved "deceptive practices" – including people being charged a much higher fee than agreed, fees being imposed for services they never signed up to and firms pretending to be the lender at the other end of the chain instead of the go-between.

One fifth of consumers who complained to Citizens Advice had had their card details passed on to other brokers without their knowledge. Some people had not even completed the application process but still found their cards being charged.

Fees are refundable if a loan is not taken out – but Citizens Advice's analysis of 228 cases where a customer attempted to get a refund found that 28pc were refused, 14pc were promised a refund which never appeared and 42pc struggled even to get in touch with the broker.

In one case seen by the charity, a young woman sought help after she applied for a payday loan and was bombarded with texts from other payday loan firms "within seconds".

She contacted two or three of them but decided not to take out a loan. Over the next few days she found that several sums had been drained out of her bank account from different brokers, despite the fact that no loan had been given.

The payday lending industry is facing a clampdown. Tough new regulator the Financial Conduct Authority (FCA) recently announced plans to crack down on the sector, including limiting the number of times payday lenders are allowed to roll over loans to twice, forcing them to put "risk warnings" on their advertising and limiting the number of attempts lenders can make to claw back money if there is insufficient cash in a borrower's bank account to two.

The FCA is also considering the fees charged by payday firms to borrowers who default as part of plans for a cap on the total cost of credit. The Competition Commission will produce a report into the payday industry later this year.

Citizens Advice wants the FCA, which takes over regulation of consumer credit in April, to take an equally tough stance with credit brokers.

[Source: http://www.telegraph.co.uk/finance/pers ... -fees.html ]

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