The Financial Conduct Authority has taken emergency action to tackle payday loan brokers after a deluge of complaints over “blatantly unfair” practices.
The brokers have made as many as one million attempts a month to raid the bank accounts of some of the poorest members of society. While promising to find a loan, the they charge a fee of £50 to £75, and then share the person’s bank details with as many as 200 other companies, which also attempt to charge the individual.
The financial regulator said it had blocked seven payday loan brokers from taking on new business, with three in line for further “enforcement action”.
In October, NatWest said it was being contacted every day by hundreds of its most vulnerable customers, who were bewildered by the charges added to their accounts.
The FCA said the new rules would come into force on 2 January 2015, and would end the lack of clear information on the websites currently luring people into paying fees without “informed consent”.
In an unusual step, the FCA said the rules had been made without prior consultation because it considered that the delay arising from the time it would take to consult “would be prejudicial to the interests of consumers”.
It added: “The FCA also believes that enforcement action alone is not sufficient to protect consumers from the poor practices identified in the market.”
The rules will ban credit brokers from charging fees to customers, and from requesting customers’ bank details unless they comply with new requirements making it clear who they are dealing with, what fee will be payable, and when and how the fee will be payable.
The FCA clampdown on brokers is the latest in a series of regulatory actions against the payday loan industry. From 2 January 2015, the interest that payday loan brokers can charge will be capped at 0.8% a day in a move, which, along with other measures, is expected to drive as many as four out of five lenders out of business.
The FCA said that over 40% of consumer credit complaints received were about credit brokers.
“The FCA has also received relevant intelligence from consumer groups and others who are seeing increasing complaints from people who have had money taken from their accounts unexpectedly and often by more than one broker.”
RBS NatWest was the first major bank to blow the whistle on payday loan brokers. It said it had terminated payment arrangements with 20 of the brokers already, but had had to battle against sites that then reappeared under various .net or .uk domains.
Terry Lawson, the head of fraud and chargeback operations for RBS and NatWest, told the Guardian in October: “We’ve seen large numbers of customers incurring charges they don’t expect when using a payday loan broker since July this year. Customers’ account or debit card details are gathered and sent on to up to 200 other brokers and lenders who charge them fees for a loan application. At its height we were seeing up to 640 calls a day on unexpected fees.”
Wendy Scurr from Middlesborough, who lives on disability benefits, looked for a loan online to buy a new settee. “I put in my bank details as they said I had got the loan. But as soon as I submitted the final bit of information, it popped up that I had been declined. I felt that I had been conned out of my bank details, but I thought not much more about it.
“But on the Friday when I went to take some money out I found there had been two payments made of £67.88 to My Loan Now and £59.99 to another lender.
“I went into the bank and they told me that six minutes after My Loan Now had taken the £67.88, it attempted to take the money again but as I had nothing left it was rejected.” She has since had to change her bank account to stop repeated attempts to take money.
My Loan Now’s website displays a warning that it will charge a “one-off loan matching fee” of £67.88.