Credit Brokers vs. PayDay Loans – DIY Survival Guide

We break down the details on using a credit broker and applying for a Payday loan.

If you need to apply for a Payday loan utilizing a credit broker to obtain the loan – this could end up costing you more, than you bargained for.

What is a Credit Broker?

A credit brokerage firm provides clients with help obtaining credit by comparing the market and providing you with information about a company that can offer you a deal. With technology as a fundamental tool brokerage firms can find organizations offering loans for people who are in need of funds. This service comes with a fee. Often a steep one and credit brokers make a commission based on the amount of the loan.

Why do Credit Brokers Have a Bad Name?

In some cases, brokerage firms will not disclose that they are in fact, a credit broker. Many people have found that the credit broker charged a fee for services they did not do during the loan process. Many people are unaware that they were using a credit broker and unknowingly signed up for their services thinking they were:

  • Applying directly for a loan
  • Using a website that compares other sites based on credit score to find you the best deal
  • Responding to text messages or email campaigns inviting you to secure a loan

In some cases, credit brokers took their client’s information and sold it to other credit brokers often without permission to transfer personal data and information. Fees were often charged for this service, giving some credit brokers a bad name. This combined with credit brokers not registering with the Financial Conduct Authority (FCA) left many people skeptical about working with credit brokers.  If you are seeking to use a credit broker they must disclose that they are in fact a credit broker, not a lending institution.

credit brokers

How to Tell if a Credit Broker is Authorized

Before working with a credit broker it is always prudent to check with the FCA first. Legitimate credit brokers are authorized and their activities are regulated by the FCA. Furthermore, a credit broker with also be listed on the Financial Services Register. All communication with a credit broker should be clear that they are indeed a credit broker, not a lender.

Do you Need a Credit Broker to Apply for a Payday Loan?

With modern technology and internet access readily available, many people will find their ability to compare loans online is much easier than utilizing a credit broker. If you are considering a Payday loan keep in mind the amount of interest is charged and any fees that go along with the application process. If you are unable to pay the loan back within the time frame agreed to, you could end up in more debt than you bargained for. Searching for other options can allow you to seek out the best possible rates and lenders based on your specific needs. If you need help with debt advice, there is free debt advice available to those who require further information and assistance. 

For more information about free debt advice and what you need to know about PayDay loans click on the links below.

  • Find out what you need to know about pay day loans
  • Find out where to get free debt advice

How to Stop Credit Brokers from Taking Unauthorized Payments

Your first step to stopping credit brokers from taking unauthorized payments from your banking accounts is to cancel their services, immediately. You will have 14 days to cancel based on the Financial Services Regulations. You do not need to provide a reason for cancellation and a credit broker should refund any fees or charges you incurred during the initial service time. If you have issues obtaining your refund file a complaint with the Financial Ombudsman consumer service. In case the credit broker is already taking funds from your bank account, you can contact your bank to stop payments. If the credit broker is receiving regular payments through your banking institution, you may have unknowingly signed up for a Continuous Payment Authority (CPA). To have these payments stopped ask the credit broker to cancel the CPA and stop any future payments, immediately. Your bank should also be able to assist with this request. If you have trouble canceling the CPA, you have the legal right to go through your banking institution for assistance canceling the CPA.

Next Steps…

In case your bank has issues canceling the CPA, the next step is filing a formal complaint. If you still do not have a resolution you can file an additional complaint with the Federal Ombudsman. If you are concerned that the credit broker you are using is not authorized checking the FCA consumer report is your first step.

If the credit broker you are looking into is not authorized, contact the Trading Standards or the Action Fraud. Each organization deals with fraud and financially motivated internet crimes. For more information visit the Action Fraud website.

Your Legal Rights Against Credit Brokers

As of January 2015, they cannot legally obtain fees from your account without making it clear what type of service they are providing. Credit brokers must make it clear that they are in fact a credit broker not a lender. Additionally, they must follow all compliant rules through the FCA to obtain any fees from you. Any information you receive from your broker should be clear and concise. Additionally, you will have to sign a written consent stating you authorize the credit broker to take fees from your bank account. Below is a list of what an authorized credit broker should provide you.

  • What the firm’s legal name is and not just their trading name
  • That the firm is (or acting as) a credit broker and not a lender
  • How much any fees will be
  • How the fees will be charged and when you will have to pay them
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