Consumers reminded of rights when using credit brokers
Consumers using credit brokers to introduce them to sources of credit are reminded that if they are not found a suitable loan within six months and do not take up any loan offered – for whatever reason – the broker can only keep £5 of the arrangement fee.
The OFT has found that some brokers are targeting disadvantaged consumers and not making them aware, until after the fee (usually around £50) is paid, that the prospective credit provider will only lend the consumer amounts less than they are asking for or that loans are only available with a guarantor. In such instances, the consumer may wish to reject the loan offered. The OFT advises any consumer who is not happy with the credit agreement on offer from their broker, to request in writing that the broker's fee be refunded, less £5.
Credit brokers cannot contract out of these provisions and any such terms within their contract may be void under the Consumer Credit Act. Credit brokers who fail to refund fees in these circumstances risk losing their consumer credit licence or action under the Enterprise Act in order to ensure compliance in future.
Penny Boys, OFT Executive Director, said:
"The law on brokerage fees is clear. If a consumer does not accept the credit offered, no matter what the reason, they are entitled to a refund less the £5. Consumers thinking about entering into a credit agreement need to be aware of their rights."
Consumers who have difficulty obtaining a refund should contact their local trading standards service.
NOTES
1. Section 155 of the Consumer Credit Act 1974 was introduced as a result of abuses that came to light while the Act was being drafted. Some brokers had developed the practice of charging prospective borrowers large advance fees, under a variety of guises, and then making little or no effort to obtain the required loan.
2. Section 155 applies to a number of types of agreement including mortgages and consumer loans of £25,000 or less. It states that a credit broker may charge no more than £5 for its services if the consumer does not enter into an agreement within six months of an introduction to a lender. If the broker has already charged more than £5, the excess must be refunded to the consumer upon request.
3. Further information on section 155 can be found in our publication Consumer credit Act 1974 Section 155 – Right to recover brokerage fees [PDF Document].
4. Under Section 25 (2) of the Consumer Credit Act 1974 the OFT can, when determining whether or not a licensee is fit to hold a licence to carry on the business of providing consumer credit, consider, among other matters, evidence of the licensee: (i) contravening any provision made by the Act, such as Section 155 [Section 25 (2) (b)]; or (ii) engaging in business practices appearing to it to be deceitful or oppressive or otherwise unfair or improper (whether unlawful or not). [Section 25 (2) (d)].
Taken from OFT 6th February 2006