Brokers that give credit

All credit brokers must make clear in financial promotions and other documents intended for customers their status, including the extent of their powers, the nature of the service they provide and any links to lenders.

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Credit broking firms: key rules, brokers that give credit.

Firms can find out more in CONC 3.7. Fee-charging credit brokers must disclose any fee payable at an early stage and have it agreed in writing before a credit agreement is entered into. The disclosure must include how and when the fee is payable and whether a refund may be available. Firms must also disclose their fee (if any) to the lender to enable the lender to calculate the correct APR. Firms can find out more in CONC 4.4 and CONC 4.5.

Credit broking firms: key rules

Read about the key rules for credit broking firms.

Summary of rules

Our credit broking rules affect non-fee charging and fee charging brokers. This summary is not a full list of rules that apply to credit brokers. Your firm should always check the relevant parts of the handbook.

All credit brokers are banned from charging fees to customers, and from requesting customers’ payment details for that purpose unless they comply with our requirements:

Firms need to ensure customers are given clear information about who they are dealing with, what fee will be payable, and when and how the fees will be payable – known as the ‘information notice’

Firms also need to obtain confirmation from customers that they are aware of the information notice and its contents – known as the ‘customer confirmation’. Firms can find out more in CONC 4.4.

Correspondence with customers

All brokers need to include their legal name (as it appears in the financial services register) in all advertising and all correspondence with customers, not merely their trading names. Firms can find out more in CONC 3.7.

Advertising and financial promotions

All credit brokers need to make clear in their advertising that they are brokers and not lenders; if they are both a broker and a lender, if the advertising is solely promoting its credit broking services the advertising will need to make clear that it is for the firm's broking services, not their lending services. Firms can find out more in CONC 3.7.

Distance contracts

All credit broking contracts that are distance contracts have the 14-day right of cancellation and right to a refund required by the distance marketing directive. Firms can find out more in CONC 11.1.

Treating customers fairly

All credit brokers must pay regard to the interests of their customers and treat them fairly. All customer communications should be clear, fair and not misleading. Firms must ensure that their charging policy is clear and accessible. Firms should refer to the principles.

All credit brokers are prohibited from taking a fee from a customer’s bank account without express authorisation from the customer. We expect the amount, or likely amount, of the fee to be disclosed as early as possible. Firms can find out more in CONC 2.5.

All credit brokers are prohibited from unfairly passing customers’ data – including payment details – to third parties, without consent or for a purpose other than that which consent was given. This is also likely to breach the data protection act. Firms can find out more in CONC 2.5.

Advertising and marketing

All credit brokers’ financial promotions (including websites) must be clear, fair and not misleading. Firms must not mislead as to their identity or status. Firms can find out more in CONC 3.3.

Transparency of status

Transparency of fees and commissions

Fee-charging credit brokers must disclose any fee payable at an early stage and have it agreed in writing before a credit agreement is entered into. The disclosure must include how and when the fee is payable and whether a refund may be available. Firms must also disclose their fee (if any) to the lender to enable the lender to calculate the correct APR. Firms can find out more in CONC 4.4 and CONC 4.5.

Refunds

All credit brokers should respond promptly to any request for a refund, and if a refund is required, pay it promptly. Section 155 of the consumer credit act entitles the customer to a refund (less £5) of any brokerage fee if a credit agreement is not entered into within six months of an introduction to a source of credit. Firms can find out more in CONC 6.8.

Credit brokers and authorisation

Here we list some typical misconceptions about the way we authorise credit brokers. Then we give you the facts.

✘ A firm that brokers only exempt agreements doesn’t need a credit broking permission.

✔ credit broking is only relevant in relation to loans classed as credit agreements, which are loans to individuals and partnerships consisting of two or three persons. It does not include, for example, loans to companies, which are exempt.

Our regulation of credit broking includes regulating the broking of some credit agreements which may be exempt from regulation. For example, business loans above £25,000.

✘ A firm that only makes introductions to brokers (rather than lenders) does not require a credit broking permission.

✔ any introductions you make to other credit brokers will be classed as a regulated activity, if the aim is to introduce customers to credit. So, you’ll need FCA authorisation.

✘ credit broking permission is not required if a firm’s broking is ancillary to its main business.

✔ retailers using third-party lenders to arrange finance are still likely to be engaged in credit broking – assuming the instalment credit exemption doesn’t apply.

✘ A person who carries on credit broking as an ancillary activity is automatically eligible for limited permission.

✔ you may be eligible for limited permission if your broking relates to the goods and services sold by your firm, and your main business doesn’t involve a regulated activity other than the regulated activity of entering into, or exercising the owner’s rights under a consumer hire agreement. Firms that broker consumer hire and hire-purchase agreements are also eligible for limited permission but domestic premises suppliers aren’t eligible for limited permission broking.

✘ A firm is only a domestic premises supplier if they make sales in the home.

✔ the definition of a domestic premises supplier includes firms who offer to sell goods or services when visiting customers in their homes. This is the case even when a contract is only completed online or in an office at a later date. Providing a binding quotation is one example of an offer – whether the customer chooses to accept it or not.

✘ A firm is only a domestic premises supplier if they discuss credit in the home.

✔ the definition of a domestic premises supplier covers the practice of selling, offering or agreeing to sell goods, as well as offering or contracting to supply services. You’re likely to be classed as a domestic premises supplier if you conduct such activity in the homes of your customers. A credit broker that is a domestic premises supplier is not eligible for limited permission broking.

Credit brokers and payday loans

If you are looking for a payday loan, using a credit broker to find one could cost you money in unnecessary fees. This page tells you more about what you should think about before you use a credit broker to find a payday loan.

What are credit brokers?

Credit brokers are firms which can help find you a loan, for example because you have a poor credit history.

Some credit brokers operate online through websites and specialise in payday loans and other high-cost, short-term credit.

Some are paid commission by lenders but others charge a fee for their services.

Why have there been problems with some credit brokers?

Some firms have not made it clear to customers that they are credit brokers – their websites might have implied they are a lender who can provide a loan direct.

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Others didn’t make it clear that they would charge a fee for their services, or how much this would be.

And some took payments from consumers’ bank accounts, without permission, and without providing the service they had promised.

Often people were unaware they were actually signing up for a credit broking service.

They gave their bank details because they were told this was to confirm their identity or to allow the lender to make a credit check.

They did not realise that money would be taken from their account.

Once someone had given their personal details, some credit brokers would pass these on to other credit brokers, also without the customer’s knowledge or consent.

People would then find that other firms had also charged fees.

In many cases, the customer had several fees taken from their account but did not end up with a loan.

When they complained, they often found it difficult to contact the firm, or were given excuses for why a refund could not be given – even though by law the customer was often entitled to their money back.

Some of these credit brokers were not registered with the financial conduct authority (FCA) or were trading illegally under a different name.

Should you use a credit broker to find a payday loan?

You don’t need to use a credit broker to search for a payday loan. It is quite easy to compare the market yourself, by visiting the websites of individual lenders, or using a price comparison website.

You can ask lenders for a quote, showing how much it will cost to borrow the amount you want, over the period you want – this will be shown as the ‘total amount payable’.

Also, think carefully before going for a payday loan. Bear in mind the interest rates are high and the debt can quickly spiral out of control.

If you are unable to pay back the loan within the agreed period you could end up deeper in debt.

You should look seriously at other options for borrowing or seek free debt advice.

There are many other ways to borrow money or repay debts that will cost you a lot less in the long run.

How to stop credit brokers taking unauthorised payments

Cancel the credit broking service

If you have signed up to a credit broking service online or by phone and decide you no longer want it, you can cancel and ask for your money back.

This is under the FCA’s distance marketing rules – but you have to cancel within 14 days.

You don’t have to give a reason why you want to cancel and the credit broker should refund any fees you have paid within 30 days.

It can only retain part of the fee if it has actually provided you with a service during the period before you cancel.

If you have a problem getting a refund, you can complain about the credit broker to the financial ombudsman consumer service.

Contact your bank to stop payments

If you have given payment details to the credit broker, you might have agreed to a continuous payment authority (CPA) – even if you didn’t realise it.

A CPA allows a company to take money from your bank account.

You can cancel the CPA by telling the credit broker or asking your bank or building society to stop further payments.

Your bank should comply with this – but you need to act quickly, ideally before the money comes out.

If a fee has already been taken without your permission, ask the bank for a refund.

If your bank refuses, you can use their formal complaints procedure to complain.

If you are unhappy with the outcome you can complain to the financial ombudsman.

How to check if a credit broker is authorised

Before you use a credit broking service you should check the firm is authorised with the FCA.

You can do this by checking the FCA register

If a credit broker isn’t authorised by the FCA

If the credit broker isn’t authorised, you can notify trading standards or notify the FCA’s customer helpline.

They won’t be able to take on individual complaints, or get compensation for you, but they can take action against the credit broker if there is evidence of wrongdoing.

Or you can contact action fraud which deals with fraud and financially motivated internet crime.

To find out more go to the action fraud website opens in new window .

How the law protects you from credit brokers

FCA rules require all credit brokers to make it clear who they are and what service they’re offering.

In addition, credit brokers are not allowed to charge you a fee or take payment details unless they have first provided you with an information notice, in writing (or by email) which clearly states:

The firm’s legal name (and not just their trading name)

That the firm is (or is acting as) a credit broker and not a lender

That they intend to charge you a fee

The amount of the fee

How and when the fee will be charged.

They can only charge you a fee or pass payment details to another person if you have acknowledged (in writing or email) that you have received this notice.

If you do decide to go ahead, and the broker does not get you a loan within six months they have to refund the fee less £5 – this is under section 155 of the consumer credit act.

They should tell you about this when you sign up.

How lenders decide whether to give you credit

When you apply for a loan or other type of credit, such as a credit card, the lender has to decide whether or not to lend to you. Creditors use different things to help them decide whether or not you are a good risk.

On this page you can find out:

How your credit rating is decided

What information a creditor can find out about you to help them decide whether to lend to you

What you can do if you are refused credit, including how to correct wrong information on your credit reference file

How to get a copy of your credit reference file

How fraud can affect your credit rating

How to get credit if you’ve got a low credit score.

To find out more about taking out a loan or other types of credit, see further help and information.

Credit scoring

Credit scoring is a system used by creditors to decide how much of a risk it is to lend to you. When you apply for credit, you complete an application form which tells the lender lots of things about you. Each fact about you is given points. All the points are added together to give a score. The higher your score, the more credit worthy you are. Creditors set a threshold level for credit scoring. If your score is below the threshold they may decide not to lend to you or to charge you more if they do agree to lend.

Different lenders use different systems for working out your score. They won't tell you what your score is but if you ask them, they must tell you which credit reference agency they used to get the information about you. You can then check whether the information they used is right.

Because creditors have different systems to work out credit scores, even if you’re refused by one creditor, you might not be refused by others.

You may be able to improve your credit score by correcting anything that is wrong on your credit reference file.

What information is kept by credit reference agencies

Credit reference agencies are companies which are allowed to collect and keep information about consumers' borrowing and financial behaviour. When you apply for credit or a loan, you sign an application form which gives the lender permission to check the information on your credit reference file. Lenders use this information to make decisions about whether or not to lend to you. If a lender refuses you credit after checking your credit reference file they must tell you why credit has been refused and give you the details of the credit reference agency they used.

There are three credit reference agencies - experian, equifax and transunion. All the credit reference agencies keep information about you and a lender can consult one or more of them when making a decision.

The credit reference agencies keep the following information:

The electoral roll. This shows addresses you've been registered to vote at and the dates you were registered there

Public records. This includes court judgments, bankruptcies and in england, wales and northern ireland, ivas, debt relief orders and administration orders. In scotland it includes decrees, sequestration orders, DAS debt payment programmes and trust deeds

Account information. This shows how you have managed your existing accounts such as your bank account and other borrowing. It shows lenders whether you have made payments on time

Home repossessions. This is information from members of the council of mortgage lenders about homes that have been repossessed

Financial associations. This shows details of people you are financially connected to. For example, it includes people you've applied jointly for credit with or who you have a joint account with

Previous searches. This shows details of companies and organisations that have looked at information on your file in the last 12 months

Linked addresses. This shows any addresses you have lived at.

If there has been any fraud against you, for example if someone has used your identity, there may be a marker against your name to protect you. You will be able to see this on your credit file.

How long information is kept by credit reference agencies

Information about you is usually held on your file for six years. Some information may be held for longer, for example, where a court has ordered that a bankruptcy restrictions order should last more than six years.

If information is held for longer than it is supposed to be, you can ask for it to be removed.

In england and wales, for more information about bankruptcy, see bankruptcy.

Get a copy of your credit reference file

You can ask for a copy of your credit reference file from any of the credit reference agencies. If you have been refused credit, you can find out from the creditor which credit reference agency they used to make their decision. Your file shows your personal details such as your name and address, as well as your current credit commitments and payment records.

You have a right to see your credit reference file - known as a statutory credit report. A credit reference agency must give it to you for free if you ask for it.

Credit reference agencies may offer other more expensive services where you are sent a copy of your credit reference file on a regular basis. If you're thinking about signing up to this kind of service, make sure you read the details. Check it's what you want before you agree to it.

If you sign up to a free trial and decide it’s not right for you, remember to cancel before the trial ends or you might be charged.

If the information on a credit reference file is wrong

If you think any of the information held on your credit reference file is wrong, you can write to the credit reference agencies and ask for it to be changed. But you can't ask for something to be changed just because you don't want lenders to see it.

You can also add extra information about your situation. For example, you can add information if you have had a past debt but have now paid it off. This is called a notice of correction. This might help you if you apply for credit in the future.

How fraud can affect your credit rating

When lenders search your credit reference file, they may find a warning against your name if someone has used your financial or personal details in a fraudulent way. For example, there may be a warning if someone has used your name to apply for credit or forged your signature.

There might also be a warning against your name if you have done something fraudulent.

To be able to see this warning, the lender must be a member of CIFAS. This is a fraud prevention service used by financial companies and public authorities to share information about fraudulent activity. CIFAS is not a credit reference agency. The information it provides is only used to prevent fraud and not to make lending decisions.

If there is a warning against your name, it means that the lender needs to carry out further checks before agreeing your application. This may include asking you to provide extra evidence of your identity to confirm who you are. Although this may delay your application and cause you inconvenience, it is done to ensure that you don't end up being chased for money you don't owe.

How you will know about a CIFAS warning

If there is a CIFAS warning against your name you will be able to see this on your credit file. If you are an innocent victim of fraud, CIFAS members must also send you a letter telling you that there is a CIFAS warning against your name.

A CIFAS member is not allowed to refuse an application or cancel a service you are getting, such as an overdraft agreement, just because there is a warning on your credit reference file. They must make further enquiries to confirm your personal details before making a decision.

You can get tips and useful information from CIFAS on how to avoid identity theft and what to do if you are a victim of it.

You can still get credit if you have a low credit score

If you have a low credit score, a lender may ask for a guarantor. A guarantor is a second person who signs a credit agreement to say they will repay the money if you don't. This can be a way you can borrow money or get credit when on your own you might not be able to.

If you are using a guarantor to borrow, they'll also have to give information about their personal details so that the creditor can check they're credit worthy. Try to pick a guarantor who is likely to have a good credit score.

The guarantor is responsible for paying the money back if you don't and they have the same rights as you under the credit agreement. For example, the guarantor should get the same information before and after signing an agreement.

If you are thinking about agreeing to be a guarantor for someone else, make sure you understand what you are agreeing to. Read all the small print in the agreement before signing it.

If you're refused credit

If you're refused credit, you may be able to do one of several things.

Look at other ways to raise the money

If you're having problems with your outgoings, you might be able to get help with your bills. You could also use our budgeting tool to see exactly where your money goes each month.

If you need money for a particular reason that you can't do without, there may be other ways you can raise the money - check if you can get extra help if you're on benefits or your benefits have stopped.

If you are on a low income and struggling to afford an essential item, such as a fridge or washing machine, you may be able to get help from a charity or other organisation that helps people.

You can get help to apply to a charity from an adviser at a citizens advice bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

Clean up your credit reference file

Check your credit reference file before you apply for credit or a loan so that you know whether there are any facts about you which might affect your credit score. Facts which might affect your credit rating include court judgments or a poor payment record. Get any incorrect information changed or removed and add a correction notice to explain any special circumstances.

Apply to other lenders

You need to be aware that if you apply to lots of lenders this will leave a trail on your credit reference file. This may affect your credit score as lenders may think you already have lots of borrowing or have been refused by other creditors.

If you are finding it difficult to borrow from mainstream lenders such as banks and credit card companies, check if there's a credit union in your area. Beware of borrowing from illegal money-lenders (loan sharks).

For more information about credit unions and loan sharks, see types of borrowing.

Further help and information

For more information about borrowing money and getting credit, see borrowing.

You may also find the following information helpful:

The money advice service

The money advice service website has lots of useful information about borrowing and managing your money.

Credit reference agencies

Credit reference agencies are companies which are allowed to collect and keep information about consumers' borrowing and financial behaviour.

The 3 credit reference agencies are:

CIFAS

The CIFAS website has information about what CIFAS does as well as a list of its members and details of its complaints procedure.

Card watch

The card watch website has helpful tips about how to protect yourself against fraudsters and keep your card details safe.

Action fraud

Action fraud's page on identity theft has useful information about all aspects of identity fraud.

Registry trust

Registry trust operates the public registers of court orders for the UK. You can use their online search to check whether you have a court order registered against you.

Bad credit mortgages: which lenders accept ccjs, ivas and bankruptcy?

Discover your mortgage options if you have a less-than-perfect credit history

A bad credit history doesn’t have to end your dreams of homeownership, with lenders offering a range of deals for people who’ve had ccjs, ivas and discharged bankruptcies.

And by saving some more money and improving your credit score over time, it’s even possible to get a competitive mortgage rate.

But who will accept you for a mortgage if you’ve had some financial problems in the past? We’ve combed the terms of more than 30 lenders to help you find out which will accept borrowers with poor credit histories, and what criteria you’ll need to meet to get a good deal.

Bad credit mortgages: how many deals are available?

Last month, which? Analysed the mortgage market and found that a third of deals are available to people with a less-than-perfect credit history.

And although the vast majority of these products were limited to those who’ve had ccjs, there were some offers out there for people with historic ivas and bankruptcies, too.

Our research found that to get a mortgage with bad credit, you might need a bigger deposit than you would for a standard residential loan – with the majority of deals available at 75% loan-to-value (LTV).

This means that you’ll have the greatest choice when you’ve got a 25% deposit.

Mortgages for different types of bad credit

Lenders that will accept applications from people with bad credit generally fall into two categories:

Those that offer specific mortgages for people with bad credit. These tend to be specialist lenders that offer a suite of deals for people with credit problems.

High-street lenders that don’t offer specialist products but will consider applications from people with bad credit.

The table below shows the general criteria lenders impose for applicants with ccjs, ivas and bankruptcies.

Getting mortgages after a CCJ

A county court judgment (CCJ) is usually issued when you’ve failed to pay money you owe to lenders, and reasonable attempts to recoup the cash (such as letters and late payment notices) have been exhausted.

The good news is that there are plenty of specialist mortgages available to people who’ve had ccjs – with more than 20 lenders operating in this market.

Deals are available for people with ccjs worth up to £5,000, but to get the best rate you’ll need to have had maximum ccjs of £250 to £500.

The table below shows the cheapest initial rates on mortgages that state they are available to people with ccjs.

Max LTV	max ccjs	lender	deal type	initial rate	revert rate	APRC	fees
75%	up to £250*	atom bank	two-year fix	1.44%	4%	3.7%	£1,200
75%	up to £500	accord	two-year fix	1.69%	4.25%	4.2%	£495

_{Source: moneyfacts. 25 february 2019. *max three ccjs in last 36 months, max one in last 12 months}

Find out more: get to grips with the details in our guide on getting a mortgage with a CCJ.

Getting mortgages after an IVA

If a borrower can’t afford to pay off their debts in full, they can enter into a contract with their lender – known as an individual voluntary agreement (IVA).

Only seven lenders offer specialist deals for borrowers who have had an IVA, and to get a mortgage you’ll need to have settled (or ‘satisfied’) your IVA.

While a handful of products are available for people who have settled their ivas in the last 12 months, the vast majority of deals are only available if at least three years have passed.

The table below shows the cheapest initial rates on offer for people who have satisfied their ivas for three or four years.

Max LTV	ivas	lender	deal type	initial rate	revert rate	APRC	fees
60%	satisfied four years	skipton	two-year fix	1.59%	4.99%	4.5%	£995
75%	satisfied three years	accord	two-year fix	1.69%	4.25%	4.2%	£495

_{Source: moneyfacts. 25 february 2019.}

Your mortgage options after bankruptcy

Bankruptcy is when all of your debts are written off and your assets are sold to repay them. A bankruptcy ends with a ‘discharge’ notice, which is normally issued 12 months after the date of the bankruptcy order.

You can’t apply for a mortgage when under a bankruptcy order, and the longer ago you were discharged, the more options will be available to you. To get a competitive rate, you’ll need to have been discharged for at least three years.

The good news is that you can get a mortgage at up to 90% LTV having previously been declared bankrupt.

The table below shows the lowest initial rates available at three popular LTV levels for people who have been discharged from bankruptcy.

Max LTV	bankruptcy	lender	deal type	initial rate	revert rate	APRC	fees
60%	discharged four years	skipton	two-year fix	1.59%	4.99%	4.5%	£995
75%	discharged three years	accord	two-year fix	1.69%	4.25%	4.2%	£495
90%	discharged four years	skipton	two-year fix	2.01%	4.99%	4.7%	£995

_{Source: moneyfacts. 25 february 2019.}

How to get a mortgage with bad credit

If you have a less-than-perfect credit history, you should attempt to repair this before applying for a mortgage.

The are some steps you can take to improve your credit score over time. As a starting point, ensure you’re on the electoral roll, limit any credit applications and consistently pay any debts on time each month.

As we mentioned earlier, to get the best rates you might need to save up a bigger deposit. Owning a larger chunk of the property outright will make you a less risky proposition for lenders, and open the possibility of more choice and better mortgage rates.

Find out more: learn more about applying in our full guide on bad credit mortgages.

Understanding how commission credits to home buyers function

When agents kick back their commissions to homebuyers

Real estate agent discussing commission credits with prospective buyers.

Some agents will kick back all or part of their commissions to buyers to help sales along. Not all agents are willing to part with what they see as their hard-earned money, and not all state laws are on board with the concept, but it does happen. Real estate agents who credit their commissions are a somewhat controversial subject.

How commission credits works

Let's say that an agent has signed a listing agreement with a seller. The seller agrees to pay the agent a 5 percent commission. The agent then agrees to split that commission with a buyer's agent. The listing broker would get 2.5 percent, and the buyer's broker would get 2.5 percent.

If a buyer's agent has decided to provide a commission credit to her client, the buyer, that credit is limited to her commission percentage. She can credit part or all of it, but she can't exceed that 2.5 percent, at least if she doesn't want to come out of pocket to make up the difference.

Agents can't pay a commission to an unlicensed person. But, they can rebate a portion of their commission to a buyer, sometimes as a closing cost credit, or to pay part of the down payment if the buyer's lender will allow it. Sometimes these credits take the form of gift certificates or even "free" services provided during the purchase process, such as home inspections that the agent pays. An agent might foot the bill for moving costs.

Some lenders will limit what these credits can end up paying. You might not be able to accept the money at closing or as part of the closing transaction.

Commission credits in dual agency

Each agent normally represents a single party to the transaction. But, when a listing agent works in dual agency, representing both the seller and the buyer, that agent typically receives all the commission. Some listing agents reason that if the buyer had hired her agent, he'd "lose" half the commission anyway. So, the commission credit option might seem a little less unattractive.

But many agents won't work with both sellers and buyers. It's against the law to do so in some states.

Sellers can influence the situation

Some agents will negotiate real estate commissions with the seller in advance. A seller might agree to a variable commission rate. So, if the agent ends up by bringing in the buyer, the commission would be reduced from 5 percent to perhaps 4 percent. The agent earns 5 percent for representing the seller and the buyer in dual agency, and the seller benefits by paying a lower commission.

An agent might be less willing in this case to part with some of his reduced commission by way of providing credit.

Companies that offer "rebates"

In the language of real estate, a rebate is the same thing as a commission credit, and some agencies specialize in offering them. A handful of real estate companies advertise that they'll always rebate part of their commissions to the buyer. the hope is that these rebates will attract a volume of buyers to compensate for the loss of income.

But many of these discount brokers expect the buyers to do much of the legwork and to interact solely through email and by FAX. They often don't show them properties. They generally don't attend home inspections or explain paperwork when a buyer becomes confused. They typically don't even meet with the buyer until closing—if they even attend the home closing at all.

Are commission credits legal?

Commission credits or rebates are legal in most states—40 in all—and the U.S. Department of justice has even championed them. The DOJ has taken the position that providing these credits promotes healthy competition among agents.

Ten states don't agree, and they do not permit commission credits or rebates in any shape or form as of 2020: alabama, alaska, iowa, kansas, louisiana, mississippi, missouri, oklahoma, oregon, and tennessee.

Iowa allows these arrangements only in dual agency situations. It's not legal if two or more brokerages are involved in the transaction.

What about taxes?

The internal revenue service (IRS) has also gotten on board to condone commission credits. At least, it has said that these credits don't count as taxable income to the recipient. The IRS has ruled that they're an adjustment to the cost basis a buyer has in her home.

Of course, this basis might contribute to capital gains taxes down the road in some circumstances when buyers ultimately sell. But, if you live in the home and meet a few other qualifying rules, you might be eligible for the home sale tax exclusion. The first $250,000 in profit you realize from an eventual sale is tax-free. It increases to $500,000 for some married taxpayers who file joint returns.

The bottom line

These credits can amount to thousands of dollars saved for homebuyers at a cash-sensitive time. Based on a sales price of $325,000, a 2.5 commission split to the buyer's agent would amount to $8,125. The buyer would receive about $4,062 in financial assistance if the agent only offered even half his commission.

At the time of writing, elizabeth weintraub, calbre #00697006, is a broker-associate at lyon real estate in sacramento, california.

5 broker deals that'll pay you to open an account

If you're looking for a new brokerage, consider opening your account with one of these institutions. They’ll pay you a new account bonus on certain account types if you meet minimum deposit requirements and keep your account open for a specified length of time. (all promotional data presented is accurate as of may 2020.)

Key takeaways

With discount brokers cutting client fees and offering $0 trading commissions, the competitive landscape has never been better for individual investors and savers.

In order to lure in new clients (or steal them from the competition), many financial firms offer financial incentives to those who qualify.

Here, we present just five such offers that include cash bonuses, free trading, and higher-than-market incentive rates on savings products.

Charles schwab: $100 bonus or 500 commission-free trades

Charles schwab is offering a $100 referral bonus with a $1,000 deposit into a new schwab brokerage account. You can also get 500 commission-free trades with a $100,000 deposit; this deal is good for two years following the opening of the new account.

Schwab also offers unlimited commission-free online trading on most stocks and etfs for all clients.

Motif investing: 3 free months

On offer now at motif investing is 3 free months of their motif BLUE unlimited automated investment service. The offer is good only for first-time customers and is available when the new brokerage account application is approved.

For subscriptions starting at $4.95 per month, motif BLUE provides automated investing and rebalancing, real-time quotes, unlimited trading, and more.

$100 bonus + 3.75% 40-month IRA CD at navy FCU

Navy federal credit union is offering a $100 bonus, and it's available nationwide. Investors taking advantage of this deal will also have access to an attractive CD rate of 3.75 percent APY when you open a new IRA CD.

To qualify for the bonus, the new account must be funded with an opening balance of at least $100 within 45 days of account opening. The bonus will be deposited into the account within 30 days of the qualifying opening deposit.

Ally invest $3,500 cash bonus + 90 days of commission-free trades

Available at ally is an ally invest $3,500 cash bonus offer, which offers a $3,500 cash bonus and commission-free trades for 90 days when you open a new ally invest account. To qualify, you must do the following:

1. Open a new self-directed trading account by january 31, 2019.

2. Fund your account within 60 days of account opening to earn a bonus based on your deposit amount:

$3,500 bonus + free trades for $2,000,000+ deposit or transfer

$2,500 bonus + free trades for $1,000,000+ deposit or transfer

$1,200 bonus + free trades for $500,000+ deposit or transfer

$600 bonus + free trades for $250,000+ deposit or transfer

$300 bonus + free trades for $100,000+ deposit or transfer

$200 bonus + free trades for $25,000+ deposit or transfer

$50 bonus + free trades for $10,000+ deposit or transfer

3. Receive the bonus cash credit to your account within 10 business days of meeting the promotional requirements.

4. Once the account is credited, the bonus and initial qualifying deposit are not available for withdrawal for 300 days after the requirements have been met.

Get up to 500 commission-free trades at E*TRADE, plus up to a $600 cash credit

If you decide to go with an E*TRADE account, there are a few things you'll need to know. First, you must fund your account within 60 days by transferring funds from an external source. Here's how it works:

Deposit at least $10,000 into your new account.

Get up to 500 commission-free trades for stocks or options within 60 days of funding your new trading account. This excludes options contract fees.

Your first 29 stock or options trades are charged $6.95 (plus $0.75 cents for each options contract), while trades after that are charged $4.95 (plus $0.50 per options contract) up to 500 trades.

Commissions are credited back to your account within a week of the settled trade.

E*TRADE does not compensate for any unused commission-free trades.

There is a separate commission schedule for stock plan account transactions.

E*TRADE makes credits for cash or securities within 60 days of the account open, depending on deposits to the account from external sources. Credits are made within a week after the 60-period. Here's how the credit is broken down:

Deposit $1,000,000+, receive $2,500 + commission-free trades

Deposit $500,000–$999,999, receive $1,200 + commission-free trades

Deposit $250,000–$499,999, receive $600 + commission-free trades

Deposit $100,000–$249,999, receive $300 + commission-free trades

Deposit $25,000–$99,999, receive $200 + commission-free trades

Deposit $10,000–$24,999, receive only commission-free trades

E*trade offers unlimited commission-free online trading on most stocks and etfs for all clients.

The bottom line

These promotions aren’t a good way to make a quick buck, and the bonuses are relatively small, often 1 percent or less of the amount you’re required to deposit. What's more, in many cases, taxes or commissions will erode the value of your bonus.

An account-opening bonus is, however, a good incentive to give a brokerage, bank or credit union a closer look if you were thinking about opening a new account anyway. Just make sure the account type you’re opening is the best option for your long-term needs, that you’ll still come out ahead after any fees and that you aren’t depositing money you might need in the near term.