Payday lenders "should be made responsible for the actions of loan middlemen"

The Financial Ombudsman has turned a spotlight on websites that take large fees from consumers on the promise of finding cheap credit for them, even when those loans are not forthcoming.

And now Debt Advice Foundation has called for payday loan companies to be made responsible for the actions of credit brokers and so called “lead generators” – marketing sites which sell a potential borrower’s details to the highest bidder.

 According to new figures from the Financial Ombudsman, since the start of the year thousands of people have complained to the ombudsman that payday loan “middlemen” had extracted fees from bank accounts without securing them a loan.

In some of the worst cases, bank accounts were debited multiple times without warning, as banking details were passed onto other credit broking websites.

The new report said that:

  • more than 10,000 people had contacted the Financial Ombudsman to complain about credit broking websites, more than double the number in the whole of 2013;
  • in the majority of cases, the business running the websites refunded the cash they had taken as soon as the ombudsman got involved; and
  • in two-thirds of complaints it investigated, the ombudsman agreed that the consumer had been treated unfairly, while in the remainder of cases the fees had already been refunded.

The ombudsman also highlighted that many people who had used these websites thought they were applying for a loan directly and didn’t realise that they were paying a middleman.

Commenting on the new report, David Rodger, Debt Advice Foundation chief executive, said:  “We believe that the consumer’s experience of payday lending is made significantly more difficult and risk-filled by the activity of brokers and lead generators – companies that advertise loans and then sell customer details to the highest bidding loan company. 

“We have called on regulators to make the loan companies themselves responsible for the actions of middlemen.

 “In our experience, some of the most outrageous examples of marketing of payday loans have come from these companies; some of their ads and websites would be laughable if they were not leading to such misery for so many people.

“For people struggling to pay bills and desperately trying to find a loan, it is impossible to differentiate between the middleman and the subsequent lender.

 “Many lead generators are not brokers (or even affiliates) in the accepted sense.  Often registered overseas, they are marketing companies with expertise in online sales; they build targeted websites to generate traffic and sell leads, often from outside the UK.  They need have no more than a cursory understanding of UK financial services or regulation, even when they say they are brokers and have an interim consumer credit licence.

We believe lenders should be forced to stop hiding behind these largely unregulated companies, and we would urge similar rules to those that were put in place to regulate the way in which a credit card company bears a responsibility for the actions of outsourced debt collectors.”

To read the full Financial Ombudsman story, click here