New rules that aim to protect borrowers from unscrupulous credit brokers will come into force from next year amid concerns over poor practice in the industry, the Financial Conduct Authority (FCA) has announced.
From 2 January, brokers will be banned from charging fees to customers or requesting their payment details unless customers are given clear information about who they are dealing with and how and when fees will be payable.
Brokers are businesses that promise to put a customer in touch with a payday loan firm, often for a hefty fee. But many people who use brokers are unaware that a fee will be levied, with many duped because the T&Cs on the websites are not clear enough.
The FCA said more than 40% of consumer credit complaints it received were about brokers, 80% of which related to firms that charge upfront fees. The industry's practices were causing "serious detriment" to consumers.
Under the new rules, all firms will have to include their legal name, not just their trading name in all advertising and communication to customers, state clearly that that they are a credit broker and not a lender, and report to the FCA their internet domain names.
Consumers will also have a 14-day right of cancellation where contracts are entered into over distance, for example online.
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."
Russell Hamblin-Boone, chief Executive of the Consumer Finance Association, which represents payday lenders, added: "We have been calling on the FCA to tackle broker practices and so welcome its decision to act early. Many of the customer problems that we see have been caused by these middlemen, but are often wrongly attributed to lenders."
The FCA is currently investigating a number of credit broking firms. Seven have been stopped from taking on new business, while another three have been referred for enforcement action.