The rent is overdue, the credit card balances are at their limits and you need money to put food on your table. You have no idea what to do next but you happen to read a classified add which states “Need a loan, but don’t have a good credit rating? Call Us.” If you are unable to qualify for a loan from your local financial institution, this offer might be tempting. What is Loan Broker?

Prior to making that call, you should gather all pertinent information regarding the person to whom you are about to entrust your finances. Individuals such as the ones described here are called “loan brokers.” Loan brokers arrange loans for people who are unable to obtain them through traditional banking institutions Loan brokers act as the loan applicant, on your behalf, and guarantee to repay the money that you borrow to the financial institution. You must be aware, however, that this service is not free. In the past, loan brokers required that the surcharge be paid prior to the loan being made. This is no longer the case. In Ontario, a loan broker is no longer permitted to request or charge a fee prior to a customer receiving a loan. If you decide to apply for a loan from a loan broker and you are asked for “‘a couple of hundred dollars to seal the deal,” the request made is an illegal one and you should contact the Minis try of Consumer and Commercial Relations immediately. Under the new law, which came into effect on December 8, 1994, loan brokers: ‘are required to give a full refund, within five days, or any fees that may have been prepaid contrary to the act’ may be charged with civil dam ages greater than the fee charged in contravention of the act if the consumer takes the matter to court if convicted, can be fined up to $25,000 and one year imprisonment for individuals and up to $100,000 for corporations.

Consumers are additionally cautioned to make certain they understand the contracts completely if they deal with loan brokers. The contract should include:

  • full name and address of the borrower and lender
  • the amount of money being borrowed
  • the amount of any service charge, if one applies, and the guarantee that the fee will be deducted from the loan once it is approved
  • the interest rate of the loan
  • the terms and total cost of the loan.

Consumers should refuse to deal with a loan broker who:

  • will not answer their questions * does no guarantee in writing that the loan will not be sold to a third party at a later date
  • refuses to provide information regarding the lender’s identity
  • will not say which lenders are being considered.

In recessionary times, more consumers find it difficult to borrow money and, for some people, these companies are used as a last resort. It is very important that you, the consumer, understand exactly what you may be getting yourself into. Prior to entering into any contract or agreement find out more about the company with which you intend to do business.

For more information, contact the Ministry of Consumer and Commercial Relations by calling (416) 3268537 or call your local Crime Prevention Officer at 808 2222.

Article extracted from this publication >>  September 25, 1996