Loan brokers act to help you find a loan to suit your individual circumstances. They’re most commonly used by people who can’t get a personal loan from their bank, either because their bank doesn’t offer loans (many challenger banks don’t offer this service yet), or because their credit score isn’t quite strong enough for a bank’s loan.
If you’ve been charged loan commission fees that you aren’t aware of, that you didn’t agree to, that are too high or that have been kept despite you not taking the loan, you may have been illegally charged, and you could claim the money back.
These brokers will charge a commission fee for their work in finding your loan. But they aren’t always handled in the correct and legal way.
Read on to find out when you may have been charged illegal loan commission fees or been mis-sold your loan on this basis.
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Firstly, you need to be aware that you were being charged commission on your loan. If you used a broker but didn’t pay them directly, then check your loan agreement. Is it clear from the contract that your broker was paid a loan commission fee, and how much it was? If you can’t find any mention of the commission in your agreement, then you may have been mis-sold your loan.
Your broker has a responsibility to ensure all fees in your agreement are clearly spelt out for you. If they haven’t done so, they might be able to make a complaint and get the fees returned to you.
The broker may argue that they told you verbally or if you’ve used an online broker, that they advertised this information on their website. However, if you have paid any kind of loan setup fee that you thought was going to the lender, then your agreement is legally bound to detail what your money is paying for and so instead should give details of the commission element.
If it does not, consider getting in touch with one of our mis-sold loan specialists to find out what action you could take.
One of the ways that a broker can act illegally is by mispresenting themselves as the lender. They may do this for a number of reasons, but usually, it is either to hide the fact that they are getting a commission, or it is to prey on people who might have a poor credit score and who are looking for a lender who might be more supportive to their case.
Many vulnerable people are looking for instant decisions. They so would rather go directly to a lender to be told yes or no, rather than working through a broker who might then get in touch to offer alternative products if the answer isn’t what you were hoping for.
Whatever their reasons for not making clear they are a broker rather than a lender, they can use this information to also hide their commission from you. You have a right to know, and to clearly understand, who you are borrowing from. If you spoke to someone to arrange a loan but then received agreement contacts from a third party, then consider whether you were actually speaking to a broker.
Sometimes you may have been charged illegal loan broker fees even if you knew commission was involved. That’s because you need to know how much of the money you’re paying is actually commission too, not just whether it was paid if you’ve been told that as part of your interest or loan setup fee that the broker will take a cut, but they haven’t made clear their percentage or set fee in your loan agreement, you may have a case.
This is a result of the Plevin ruling, which arose from a PPI claim made in 2014 by Mrs Susan Plevin against Paragon Personal Finance. She discovered that, of her £5000+ payment she made for Payment Protection Insurance alongside her personal loan, only £1,600 was used for the policy – 71% of that fee was actually commission, something she wasn’t told about at the time.
Mrs Plevin took Paragon Personal Finance, and the broker involved to the Supreme Court, arguing that she would not have taken out the PPI if she had known so little of her money was actually being used for the policy. And she won her case – meaning she was refunded the fees.
As a result, commission payments considered too high were able to be reclaimed by customers. With PPI, the decision was made by the Financial Conduct Authority that anything over 50% commission was too high, although if you’re now considering whether you might have a case, be aware that PPI claims, even those under Plevin, had a deadline of 29th August 2019 and so would need to be exceptional to be acted on now.
However, you may be able to make the argument that your loan commission fees are too high if you aren’t aware of them. This threshold of 50% may be different depending on your circumstances.
One of the other reasons you may have been charged illegal loan commission fees is if you decided you no longer want the loan after all. You have a 14-day cooling-off period once you signed the agreement that entitles you to change your mind. If you decide to cancel within this period, then you’re entitled to a full refund of any commission fees within 30 days under the Financial Services (Distance Marketing) Regulations 2004. If you don’t get your refund in time, you could make a claim for them being illegally withheld.
If you paid a broker fee and then didn’t sign the loan agreement, your broker also can’t withhold their fees even if they claim their service was complete because they set up the potential agreement for you.
Under Section 155 of the Consumer Credit Act 1974, the most that a credit broker can withhold if you decide not to proceed with a loan in the six months after introductions is £5. If you’ve paid more than this, you can claim a refund. You can view this full legislation here.
There are, as you can see, many ways in that you could be charged illegal broker loan commission fees. If you feel you’ve been charged hidden commission, or you’ve had fees withheld despite not proceeding with your loan, then you absolutely have a great chance of making a claim and getting a refund of your hard-earned money.
In recent times we have seen regulations tightened with regards to compensation and the relationship between various third parties. While historically you may have had to “request” information of third party agreements/commissions, the situation is very different today.
There is greater transparency, greater trust in the system, but unfortunately, some rogue elements still emerge on a regular basis.
You can either pursue financial compensation yourself or through a claims management company. Your first port of call would be to contact the broker/finance provider directly to clarify the situation.
If they were not forthcoming with the relevant details then you can take your complaint to the Financial Conduct Authority (FCA). They will contact the finance provider directly to confirm the details of your claim and any potential irregularities.
Even the most “straightforward” of claims can become a little more technical when considering the level of evidence required and how this can be obtained. As a consequence, many claimants are now seeking the services of claims management companies who have deep-seated experience in this area.
They know who to speak to, the evidence required and the level of compensation you are entitled to. They will request a payment for their services, but this is generally done under a “no win no fee” arrangement and a share of any compensation awarded.
This is a more technical area of the financial compensation market but one that many claims management companies are extremely comfortable with. The idea of claiming commission that was not disclosed is very different from the process of your broker choosing a lender.
If you can prove that the advice given was based upon remuneration as opposed to “what was right for you” then you may be able to claim additional damages.
There is some confusion over the role of independent brokers and tied brokers. They are legally required to disclose their status before any agreement is signed. An independent broker has access to the whole market and a larger range of products.
A tied broker will work with a relatively small number of lenders/financial providers, so in reality, you don’t have access to the full market. As long as their status is disclosed before signing any agreement, then they are fulfilling their legal obligations. Obviously, they would also need to disclose any commission arrangements.
When dealing with a broker you tend to find there are three different commission structures:-
As long as the structure of the commission is disclosed at the earliest opportunity there is nothing wrong with any of the above arrangements. Therefore, if in hindsight you decided to pursue financial compensation because of the commission structure, you would have little chance of success if it had been disclosed correctly.
Here at Money Savings Advice, we have partnered with some of the UK’s leading Financial Claims management companies. They have already helped thousands of people claim compensation for mis-sold financial products and they can do the same for you.
Choosing an independent claims management company means they won’t proceed with a claim unless they are sure it is in your best interests. They are also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these claim management companies who can help you make a compensation claim, then click on the below and answer the very simple questions.
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