The impact of FCA rules on credit brokers has been significant, with a number of credit brokers having left the market since April 2014. Perhaps the most difficult challenge for the industry has been that credit brokers have been brought within the compulsory jurisdiction of the FOS.
The latest ombudsman news, number 125, explains what the FOS has been doing to tackle complaints about broking and middlemen. Although the article deals with insurance broking as well as credit broking it dispatches the former quickly, stating that the FOS approach to complaints about how insurance was sold is 'well-established'. The real focus is on credit broking, describing how the approach to complaints handling in this sector has developed in the six months since Tom commented on the FOS report on payday lending fees.
The FOS reports that there has been a "significant increase in the number of complaints about credit-broking services for short-term loans" over the past year because customers are not always aware that they have used a credit broker. This may be because this was not made clear at the point of sale. It may also be because customers never actually received a loan, yet have been charged a fee by the credit broker.
The FOS sets out some details about how it decides cases and its approach to redress:
- If customers haven't received a loan but have been charged fees the FOS will try to establish whether the fees were made clear when the customer applied for a loan. If not, then the FOS will usually tell the credit broker to refund the fees.
- FOS will tell credit brokers to pay compensation for any distress and inconvenience caused by a wrongly-charged fee.
- If credit brokers fail to provide adequate information following requests by the FOS or customers, the FOS will reach an answer based on the information it has available.
The message for credit brokers is that transparency is key. They must be upfront about their fees if they want to retain them. The risks in trying to slip fees past customers are significant because, if the FOS upholds enough complaints against a credit broker, the FCA may expect a credit broker to take action to compensate customers and refund fees through a voluntary past business review under guidance at DISP 1.3.6G. The cost of such a process can push a firm into or near insolvency.