Website scam offers 'cheap' loans which actually cost 7,000%

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Justice

There has been a spike in complaints about websites that promise to be able to secure you a cheap loan in return for an up-front fee. In fact, they're charging a fortune to get you a payday loan costing anything up to 7,000% interest.

So what are these sites, and what can you do if you have been taken in by one?

The sites claim to be able to get you a cheap loan in return for an up-front fee of around £50. Then once they have your money, instead of finding a cheap deal, they simply take out a payday loan on your behalf. These charge interest at anything up to 7,000%.

A spokesperson from the Ombudsman told the Daily Mail: "We have been surprised by the sheer numbers of calls we have received about these websites. It would suggest that there is a clear issue developing here which is affecting people of all walks of life."

Citizens Advice issued a warning about these 'credit brokers' earlier this year. It said the organisation receives around 3,000 complaints about them every year. It was particularly concerned that some of them were posing as lenders on their websites and in marketing texts, so people had no idea they were applying for a payday loan.

Meanwhile, two in five of those who had complained about a broker were concerned about the fee they had paid for an expensive loan. Some 58% of them said they had been charged a fee they weren't expecting, while the other 42% complained about either being charged a much higher fee than they were expecting or fees for services they never signed up to.

What can you do?

Your best protection is to avoid these dodgy brokers in the first place. If you need to take out a loan, it's worth using a recognised name, regulated by the Financial Conduct Authority. Check on its website before you agree to anything.

Meanwhile, as a general rule of thumb, if someone you have never heard of is offering you a loan that's so cheap it seems too good to be true, then the chances are that it is.

If you have already fallen victim to the brokers and paid the fee, you are under no obligation to take out the expensive loan, and should be able to get the fees refunded. Unfortunately Citizens Advice found that some borrowers had difficulty here too. Of those who hadn't managed to get a refund, 42% struggled to get in touch with the broker to ask for the refund, 28% asked and were refused, and 14% were promised a refund but never received one.

If you have a problem getting a refund, check whether the broker is authorised by the Financial Conduct Authority, and if they are, make a complaint to the Financial Ombudsman Service.

If they are not regulated, your best bet may be the small claims court. This does not have to be a difficult process, and is designed to be navigable without a lawyer. You will have to pay a fee to go to court, but if you are successful, the broker will be ordered to repay the fee as well as the charges. It's worth talking this through with the Citizens Advice service before you take this step, and they will help you assess your chance of success.

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