The Financial Conduct Authority will force credit broker firms to be more transparent in order to clamp down on what it deems ‘poor practice’ in the industry.
New rules, which come into force from 2 January next year, will ban brokers from charging fees to customers or requesting payment details unless transparency guidelines are followed.
This involves giving consumers clear information about who they are dealing with, what fee will be payable and when and how they will be payable.
The FCA put rules in place without consultation to avoid delay, yet the regulator added that such enforcement action is not sufficient on its own to protect consumers.
Martin Wheatley, chief executive of the Financial Conduct Authority, said: “The fact that we have had to take these measures does not paint this market in a particularly good light.
“I hope that other firms will take note that where we see evidence of customers being treated in a blatantly unfair way, we will move quickly to protect consumers from further harm.”
Currently the regulator is investigating seven firms, which have been currently been halted from taking on new businesses. Three cases have already been referred for enforcement action.
According to the FCA over 40% of consumer credit complaints are about credit brokers, and 80% of these complaints relate to firms who charge upfront fees. A common cause of complaint is people having their money taken by more than one firm.
The FCA has already tightened regulation, as in a firm’s advertising they must include their legal name as well as their trading name and prominently state that they are a credit brokerage as opposed to a lender.
If they charge fees to consumers firms are also required to send quarterly reports to the FCA.