Whenever you take out any financial product, be it a credit card, a mortgage, or an unsecured loan, you are protected by the Financial Conduct Authority. One thing that the FCA dictates is that you must always have a full and clear understanding of the finance agreement you are entering into.
If you have taken out a loan via a credit broker, and you weren’t made aware of the fees paid to that broker, then your loan may have been mis-sold and you may be entitled to a refund.
This doesn’t just mean knowing what money you need to repay, but also exactly what it is you’re paying for. This includes any fees paid either to your lender or, when used, a broker.
Read on to find out when your fees may be undisclosed, and how these illegal fees should be handled.
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If you take out any finance directly with a lender then the process is usually pretty simple – you get given your loan amount, and you’ve an interest rate which builds on your unpaid balance which gives the lender back their value as you repay more than you originally borrowed. That’s why a lender operates, to make money on interest repayments.
Where it gets a little more complex is when a broker is involved. A broker is a sort of middle-man often used to help customers find the best deal for them – at least, that’s how a reputable broker will work. Your broker won’t work for free, but in almost every case they won’t take payment directly from you. Instead, they work on a commission system, where the lender pays them. This may take the form of a fixed fee, or it could be a percentage system based on the value of your loan and the interest rate you are charged.
Problems arise when these fees are made clear to you. For example, if you’re looking for a loan and you know your credit rating is poor, you might be offered high-interest rates in order to qualify. But you may not be aware of what is a reasonable amount of interest for you to be charged based on your credit score.
With that in mind, if you visit the website of a loan broker and enter your details, your broker may recommend a loan at a higher interest value than you could find elsewhere because they have a deal in place with that lender that will see them get a hefty chunk of that money back as their fee. Now if they don’t disclose that fee to you clearly as part of your agreement, you may think this is the best deal you can find, whereas in reality there may be better loans with lower interest rates that you would qualify for.
When these fees aren’t disclosed to you, you are being mis-sold to. The lender and broker are taking advantage by securing higher repayments without you realising you could get a better deal elsewhere. Even if you know that commission is being paid as part of the deal you’ve struck with the lender, it might not be made clear just how much. This again, is mis-selling.
You’re entitled to know exactly what you’re paying for, and if an unreasonably large portion of your interest rates are being used just to pay off a broker, then you could reasonably assume you would find a lower interest rate with another lender without the unnecessary fees.
The idea of illegal loan commission fees based on payments being vague relates to a Payment Protection Insurance case brought to the Supreme Court in 2014. Mrs Susan Plevin had taken out a loan with Paragon Personal Finance through a broker, and as well as the loan she was convinced that it made sense to buy PPI to ensure she could continue to make payments if her financial situation changed.
Regardless of whether the PPI itself was mis-sold, which is, of course, a whole other issue, Mrs Plevin discovered that it wasn’t made clear to her when she signed how much of her PPI claim was actually paying off the premium to Norwich Union, who were the insurer. She then discovered that, of the over £5,000 she had paid, only £1,600 was actually for the insurance, with the rest being split between Paragon and her credit broker. 71% of her PPI costs were commission.
She took Paragon and the broker to court, arguing that the high fees were unfair. She won her case and was refunded. The Financial Conduct Authority made the decision that commissions over 50% of the total fee charged were unreasonably high, opening the door to many more claims. And while that percentage is specifically tied to PPI, there is certainly now grounds to make similar claims for other commission payments when setting up loans.
Not declaring fees is only one way that you can be misled by a credit broker. They may have broken the rules if they have masqueraded as a lender in order to convince you to apply. Often, broker websites will word themselves very carefully to paint themselves as a lender, in order to pray on people looking for a quick decision. A broker will take your details and then search for a suitable product for you, often promising to call you back once a deal has been found.
At its best, this may be frustrating, if you thought that you were applying directly to a lender already. However, some brokers don’t stop there and will continue to mislead you into thinking you are dealing directly with a lender. They will have given their own affordability survey to you and, based on your answers, will apply on your behalf for a loan with a lender they know will accept you.
These situations reiterate the importance of always checking your loan agreement contract before you sign it. Is there a company on there that you don’t recognize? It may simply be another trading name used, but always check – you may discover that you’re dealing with a broker. And if you didn’t know that, then you certainly wouldn’t be aware of how you may be overcharged in order to fund their commission fees.
With loans you’ve taken out previously, it may be difficult to prove that you were mis-sold based on being deceived by a broker, but our mis-sold loan specialists are still more than happy to look at your case and determine whether there is proof the broker acted illegally.
If you can show, beyond reasonable doubt, that you have been misled in anyway regarding the loan fees you’ve been charged – whether it’s a setup fee or a high-interest rate that was used to pay a broker commission – then you may be able to claim those funds back as compensation.
You should make any complaints directly to the lender and broker first, before turning to the Financial Ombudsman Service if they don’t deal with your complaint satisfactorily. It’s worth noting that most loans since 2008 will be fully compliant when laws were tightened – but if you have a loan from prior to 2008, you can still claim.
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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