Whether a mortgage or an unsecured personal loan, you have the option of either applying directly to a lender or using a broker.
Brokers are more common with mortgages, but it isn’t completely uncommon to use one for an unsecured personal loan, especially when you apply online. Brokers will be paid a fee made up of commission and, sometimes, a fixed fee.
If you took out a personal loan where there were undisclosed setup or commission fees, you may be able to claim them back. Many loans before 2008 had undisclosed fees.
But when these fees aren’t properly disclosed to you, they are illegal, and you could claim them back.
Read on to find out more about which undisclosed fees you can claim back.
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If you do use a broker to apply for a loan, they will spend time getting to know your financial situation and then use their expertise to recommend relevant, suitable options to you that you are likely to be approved for. In exchange, a broker must be paid – but usually, that won’t be directly by you.
Instead, most brokers are paid by commission from the lender, although don’t expect the lender to fork out when it doesn’t need to. Instead, it will either charge you a setup fee, which may be split or handed fully to the broker or instead you may have your interest rates inflated slightly to cover the cost of the monies owed to the broker.
These fees are perfectly normal and legitimate – provided you’re made aware of them. Fixed fees can’t really be hidden, but commission payments can be – if you aren’t told that part of the money you’re handing over is going to the broker, or even if you are told, but you aren’t given the amount, then you are being misled.
That’s because, in your understanding, the money you’re paying is direct to the lender, and therefore you’re getting the best deal. If the lender is paying a high level of commission to the broker, then who’s to say you can’t explore options with another lender directly where the interest rates may be more beneficial?
Undisclosed fees – where the broker is paid without your knowledge or full understanding – are against rules established by the Financial Conduct Authority. Laws have been tightened in recent years and so most financial products offered in the past decade or so will be completely legitimate.
But if you borrowed money between 1990 and 2008 where undisclosed commission was widespread, then you may have been mis-sold your loan.
There are two relevant pieces of case law which have a direct impact on the misrepresentation of commission fees. The first of these, and arguably the better known in recent years, is the Plevin ruling.
This came about from a case in 2014 where Mrs Susan Plevin discovered she was paying an exceptionally high amount of commission when she took out Payment Protection Insurance against a loan. Of the £5,000+ she was charged for PPI, only £1,600 was to cover the cost of the insurance. The remaining 71% was a commission, which was ruled by the Supreme Court to be excessive.
Since then, the Financial Conduct Authority cracked down on excessively high commission fees specifically pertaining to PPI, but an argument can potentially be made if you have spent an undisclosed amount on loan commission that ends up being a significant percentage of the total costs you incur.
Prior to the Plevin ruling, there was another example where an undisclosed commission on a loan was examined in court. In the case of Wilson & Anor v Hurstanger in 2007, Mr Wilson took the lender Hurstanger to court over a secret commission fee. He was aware that, as well as a broker fee he had already paid, the commission would also be paid to the broker.
But as he was not told how much, he was able to claim it had broken fiduciary duty. Ultimately Mr Wilson was awarded the full commission sum, plus interest, as a refund. It is this law that would normally be referenced if you were to make a claim to have your own undisclosed fees refunded.
Beyond commission fees that are undeclared either fully or just by value, there is another scenario where a fee could be classed as undisclosed. This is where the broker themselves do not disclose that they are not a lender.
In some cases, brokers may misrepresent themselves in order to encourage customers to sign up to an agreement. The broker will carry out their own affordability checks, just as they normally would, and then recommend a product. But they may try to pass it off as themselves lending the money, rather than acting on behalf of another company.
The reasons for this are usually to make the process seem simpler. Targets for these sort of mis-selling scams tend to be those who are financially vulnerable – they might have a poor credit score or other reasons that mean they may struggle to get a loan. A broker can try to appear like an easy option, before then finding a lender with a hiked up interest rate that will earn them extensive commission.
It's important to differentiate between a broker acting in this way and a lender which may operate under a different trading name. Some lenders may have a formal business name that differs from their customer-facing name, or they may change hands during the period of your loan.
So if the name of the lender on your loan agreement looks unusual, don't assume you've been mis-sold. However it may be worth investigating, in case the broker has acted improperly and misled you into thinking they were the lender as again, any commission fees they earned could be your entitlement, and you could be able to claim it back.
You are able to make a claim to be repaid commission or other undisclosed loan fees if you can prove that they weren't made clear to you. Your lender and broker have an obligation to be clear and fair in all of their communication and documentation, and so, if something has been 'hidden' from you, you can make the argument that they have acted unlawfully.
It can be difficult to prove that commission wasn't clear, but you should be able to look at the terms of the loan agreement you signed to see what was spelled out. If you need help, we have mis-sold loan specialists who are experts in this field.
They'll be able to look over all the documentation of your loan and help you to determine whether your agreement was fair and all fees were clear. As already stated, this should be of particular interest to you if you took out a loan via a broker between 1990 and 2008. This period if time is renowned for undisclosed loan fees when lenders and brokers were including them in agreements.
Yes. There is a set procedure whereby you would contact the lender/broker to make them aware of your concerns and request a response. If this response was not forthcoming, then you would contact the FCA to make a formal complaint which they would act upon.
Once the FCA becomes involved, this tends to focus the minds of lenders/brokers, but without evidence, it would still be difficult to pursue a claim for compensation.
If you suspect there were undisclosed loan commission/fees involved with your historic loan package, the chances are that others will also have encountered a similar scenario (maybe even with the same lender/broker). Therefore, claims management companies with experience in this area may already be aware of similar claims settled or going through the courts.
In some cases, this may reduce the need for more detailed evidence if similar cases have already been successfully prosecuted. Yes, you would still need to provide evidence (such as your original agreement), but if there had been the systemic receipt of undisclosed commissions in the past, this could strengthen your case.
If pursuing the claim by yourself, then the cost would simply be your time unless you needed to take additional legal advice. If you are pursuing compensation through a claims management company, then the situation is a little different.
After reviewing your evidence, the company would probably offer to take on your case if they believed you had a minimum 60% chance of success. The vast majority of cases are taken on via a “no win no fee” arrangement which effectively indemnifies the claimant from any costs incurred by the claims management company when pursuing their case.
Prior to beginning work on your case, a claims management company would look to negotiate a “success fee” which is in effect their reward for a successful prosecution. The average “success fee” tends to be around 25% of any compensation awarded, but it will vary on a case-by-case basis.
It is difficult to say with any real confidence how many perfectly valid undisclosed loan commission compensation claims have not been pursued as a consequence of misinformation/ignorance. Many people are under the impression it is expensive to pursue a claim, not so under the “no win no fee” arrangement, and while it is not always straightforward, claims management companies will have significant experience and be able to guide you.
It is also worth noting that without the “no win no fee” option many negligent third parties would never have been held to account. As a consequence, many companies would not have changed their procedures/services and clients would have continued to suffer time and time again.
If you are able to prove the presence of undisclosed loan commission as part of your loan arrangement then settlement should be fairly swift - probably a matter of weeks. Where the lender/broker disputes your understanding of the situation this could drag on for many months or even years if it was to become a test case. However, with regards to PPI (as one example) there was evidence of systemic mis-selling which significantly reduced the traditional settlement period.
When pursuing a claim via a claims management company they will be able to advise you of the potential timescale using their experience and knowledge of such cases.
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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