If you are considering taking out a short-term loan, it is important to be aware of any potential payday loan scams. This way, you can make sure that you do not find yourself becoming a victim of unscrupulous lenders or brokers.
In this article, we will investigate what you should look out for when considering payday loan brokers and examine how you could avoid payday loan scams.
What is the charging broker scam?
A charging broker scam manifests itself in charging customers unexpected fees by credit brokers for organising loans.
In some instances, brokers were even posing as payday lenders and consumers did not realise that they were using a credit broker.
Other times, it was not made clear to the consumer by the broker that a fee would be charged. Or how much that fee would be.
According to Citizens Advice, the fees charged were as much as £70.
While the fees should have been refundable if a loan was not taken out, Citizens Advice found that refunds were difficult to come by. Out of 228 cases, 28% were refused a refund. A further 14% were told that they could have a refund but never received it. Forty-two per cent had difficulty getting in touch with their broker to get a refund.
How to protect yourself from payday loan scams
In November of 2014, the FCA tightened the rules on payday lending by confirming that they were putting a price cap in place for payday lenders. This took effect from January 2015.
These rules mean that borrowers of high-cost short-term credit, such as payday loans, must now never pay back more in fees and interest than the amount that they borrowed. Additionally, there is a cost cap on interest and fees of 0.8% per day, on the amount borrowed. Default fees (which can sometimes occur if you do not pay your loan back on time) are also capped at £15.
However, it is vital to still be alert to payday loan scams.
One of the most important steps that you can take to check if the company you are looking at is a reputable lender or credit broker, is to make sure that they are authorised by the FCA. This can be done by conducting a simple search on the FCA register.
How to recognise a scam
Spotting scams involving high-cost short-term loans is simple when you know how.
All credit brokers should make it very clear which services they are offering. It should also be easy to see exactly who they are.
All brokers have to provide you with what is known as an ‘information notice’ before they can charge you fees.
This should include information about the fee (including when you will be charged) and the broker’s legal name. It should also clearly state that the company is indeed a credit broker, not a loan provider.
Avoid becoming a victim of a charging broker
Do your research and know exactly who you are dealing with. It is vital to understand which type of broker you are considering using as some brokers are paid commission by lenders, others charge a fee for their services.
Signs of a reputable broker
- A reputable broker is authorised by FCA (you can find them on the FCA Register);
- A reputable broker should have this information in an easy-to-find place on their website;
- They should be upfront about whether they are a broker or a lender;
- They should not mislead you about whether they charge a fee for the service or not;
- There should not be any other ‘grey areas’.
If you are in any doubt, move on and find another broker or lender that will provide you with all the information that you need to make your decision.
Cash Lady does not charge fees to consumers. We make it clear on all of our marketing materials and our website that we are a payday loan broker, not a lender.
There should be no room for error. If you are looking at a website and cannot find concrete information about whether you are dealing with a lender or a broker, be wary.
The same goes for fees. If you do not want to find yourself with unexpected fees, ensure that you check whether a broker charges fees or earns their money through a commission paid by loan providers.
Doing your research can help you to avoid short-term loan scams. Remember to ensure that the company you are thinking of using is authorised by the FCA.
Payday loans can be applied for without hidden fees and costs through a non-charging broker, such as Cash Lady. In order to apply for a payday loan, you will need to be at least 18 years old and be a UK resident. You will also need a UK bank account and to be in employment.
Payday loans could provide you with access to finance within a matter of hours. Not all brokers charge fees. Carry out your own research and ensure that you are happy with the company you are dealing with before you go ahead.
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