Credit Brokerage Guidance – Cessation of Referrals

Background

As you will know, ABCUL have been campaigning for some time against the activities of credit brokerage companies – such as Richmond Group – who refer people to creditors for a fee.  Most often this fee is in the region of £50 and pays for, in effect, the contact details of a creditor which may or may not be able to provide the referee with a loan.  Furthermore, many credit unions report that those referred are generally under the mistaken impression that a loan has been arranged for them and, despite being entitled to a refund where no loan results from the referral, often have trouble reclaiming the money that they are owed.

In 2009, ABCUL were successful in securing a ruling against the Richmond Group so that their companies could no longer refer people to credit unions unless they were sure that the individual referred met the credit union’s eligibility criteria – i.e. common bond and lending criteria.  This prevented Richmond from continuing as they had done previously as most credit unions refused to provide the information they required to assess eligibility.

However, we have received reports that some credit brokerage firms continue to refer people to credit unions against their wishes.

Key new OFT credit brokerage guidance

In mid-2011, the Office of Fair Trading (OFT) ran a consultation exercise around their guidance for credit brokerage firms.  With the support of member credit unions who completed a survey on the issue, ABCUL submitted a response calling for tighter restrictions upon these companies and some of their excesses.  As a result we have been successful in securing some key additions to the guidance:

• The guidance extends to all credit brokerage firms a requirement to make it clear to referees where the broker has no relationship whatever with the creditor and therefore cannot guarantee any aspect of the service to which they are referring the individual – i.e. if the broker has had no contact with a credit union to which it is referring people it must disclose this.
• A requirement (at 3.9 bb.) for credit brokers to cease making referrals to a particular creditor where that creditor has requested that they do so – i.e. credit brokers will have to comply with a credit union’s request that they discontinue making referrals to the credit union.  In the past such requests from credit unions have been ignored.

The full OFT guidance document is available (link is archived) here.

Template Letter

We are delighted to have been able – with your help – to allow credit unions to legitimately request the cessation of referrals from credit brokers.  This is something many of you have been calling for for some time.

On the right of the screen you can download a template letter to credit brokers which should provide all you need to file such a request copied to the relevant enforcement contact at OFT.

A template letter for credit union cessation of referrals is available here.