Close Motor Finance. CMF guide to the OFT Guidance for Credit Brokers and Intermediaries

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1 Close Motor Finance CMF guide to the OFT Guidance for Credit Brokers

2 Background The Office of Fair Trading s (OFT) Guidance for Credit Brokers was published in November The primary focus of the Guidance was in relation to improved standards of conduct, brokers and/or intermediaries being more transparent regarding their status (independent or otherwise), the payment of fees, the consumer s right to refunds and the disclosure of commission. A supplementary briefing designed to help lenders and their associates (Credit Brokers ) comply with the OFT s Guidance was published in September 2012 by the Finance & Leasing Association (FLA). The National Franchised Dealers Association (NFDA) a division of the Retail Motor Industry Federation (RMIF) also produced its own briefing for Motor Dealers who act as credit brokers / intermediaries and invites such to run a series of self-guide tests, that can be done on paper or via their web-site (see below) to determine what actions you may need to take. What is the focus of this Guide? This Guide provides a brief overview of the OFT s Guidance on issues such as transparency in credit advertising, status disclosure of motor dealers / credit brokers and disclosing the presence of commission. If you see any gaps between your processes and the OFT Guidance you should seek to rectify those gaps as soon as possible. Status Disclosure Brokers / intermediaries are likely to fall under one of the following headings: Independent: where they meet the OFT s interpretation of independence Exclusive Credit Provider: where they work exclusively with a single lender Restricted panel of lenders: where they work with two or more lenders but do not offer a representative range of products It is a requirement that credit intermediaries disclose the extent of their independence in their advertising and in writing sufficiently full and early before the borrower enters into a credit agreement. No particular format is specified for this disclosure and there is no requirement for it to appear on every document given to borrowers. What should be stated in your Advertising regarding your Status? In order to comply with the OFT disclosure requirements, somewhere in your advertising and promotional materials your status must be disclosed to potential borrowers. The supplementary briefings provide examples: An Independent dealer / broker could state We can introduce you to a wide range of finance providers depending on your needs. A dealer / broker acting as an Exclusive Credit Provider could state Credit is provider by [lender]. We can introduce you to [lender] if you would like to obtain finance for your purchase. A dealer / broker using a Restricted Panel of Lenders could state We can introduce you to a small number of finance providers. If there is the possibility of any confusion to the customer as to your status in this case then you must make it clear to the customer that you are not an independent financial adviser.

3 Status Disclosure Document prior to entering into a Credit Agreement The supplementary briefings suggest that a Status Disclosure document or equivalent should be presented to the potential borrower before they enter into a credit agreement. It must be a separate document from the SECCI. See example below of a Status Disclosure document for a non-independent credit intermediary. Status Disclosure Financing your Purchase Frequently asked questions Who are we? [Free text - Details of the motor dealer / broker, registered address, contact details] What can we do to help finance your purchase? We can introduce you to a number of lenders who may be able to help finance your purchase. We can only introduce you to these lenders. Or We can introduce you to [insert name of lender] who may be able to help finance your purchase. We can only introduce you to this lender. Are we able to help you finance your purchase? Yes, we are licensed as a credit broker by the Office of Fair Trading and our Licence number is [ ]. You can check this on the Consumer Credit Register by visiting the Office of Fair Trading s website at www2.crw.gov.uk/pr/default.aspx Do you have to pay for our help? No, you make no payment to us. But a lender [and/or another credit broker / intermediary we work with] may pay us [and/or another credit broker/ intermediary] for introducing you to them. Can we give you independent financial advice? No, we are not independent financial advisers What can I do if you wish to complain about our services? If you wish to make a complaint, please contact us in the first instance by writing to us at [ } or by telephoning us on [ ]

4 Commission Disclosure What is Commission for the purposes of the OFT Guidance? Examples of commission given in the OFT Guidance are: fees; commission; introducer s fees; arrangement fees; volume over-riders; any cash or non-cash benefit (other benefits); and any other benefit which may affect a dealer s impartiality or give rise to a potential conflict of interest. What should be stated in your Advertising regarding your Commission? The supplementary briefings provide examples which can be used (as relevant) We may receive a payment or other benefit from the finance provider if you enter into an agreement with them. Or Finance providers may pay us for introducing you to them. When should you disclose your Commission? The OFT Guidance states disclosure of the existence of commission to borrowers should be sufficiently full and early before a borrower enters into a credit agreement where any of the following apply: The commission could act or be seen as an undue incentive for the broker or intermediary to recommend a particular credit product. Where knowledge of the existence of commission could have a material impact on the borrower s borrowing decision to enter into an agreement. The impartiality of the broker or intermediary in promoting a credit product to a potential borrower is impacted by commission. Where a request has been received from the potential borrower before the credit agreement is made. You are not expected to provide the amount of a commission voluntarily unless you are asked for it by the customer. What if I don t know the exact amount of commission I will receive? Sometimes the exact amount of commission to be paid is not known at an early stage in the sales process. In such instances an estimate can be given to the customer and the motor dealer / broker could formally record a borrowers request for the amount of commission (perhaps via the customer management system) and the request could be fulfilled as soon as the Motor Dealer / Broker is in a position to do so (and certainly before the agreement is entered into). Close Motor Finance will confirm the amount of commission on acceptance in writing to the Motor Dealer / Broker. You should retain a copy of any commission disclosures made to your customers in case of any claims / complaints / regulatory audits.

5 Key Obligations for Motor Dealers and Brokers Treat customers fairly by ensuring they are sold suitable credit products and not subjected to improper behaviour. Be Transparent in all dealings with customers and not to mislead in any way. Provide advice that is suitable and appropriate for your customer s needs. Clearly disclose your status to the consumer, including any contractual and non-contractual links with lenders. Provide information and documentation that is compliant with legal requirements and does not mislead. Disclose to customers in certain circumstances of the existence of commission payable to you to enable the customer to make an informed choice. Further Information For further information relating to the OFT Guidance for Credit please refer to: The Office of Fair Trading (OFT): The National Franchised Dealers Association (NFDA): Finance and Leasing Association (FLA): This Guide has been produced by Close Motor Finance to help its credit broker and credit intermediary associates with implementing the OFT Guidance. It is illustrative and non-binding and does not address every issue covered in the OFT guidance, nor does it provide definitive legal guidance. All credit brokers and credit intermediaries should seek their own legal advice in relation to the interpretation of the OFT Guidance.

6 Close Motor Finance is a trading style of Close Brothers Limited. Close Brothers Limited is registered in England and Wales with company number and registered office at 10 Crown Place, London EC2A 4FT. Close Brothers Limited is authorised and regulated by the Financial Services Authority, FSA register number Close Brothers Limited is a member of the Finance & Leasing Association (FLA) and the Consumer Credit Trade Association (CCTA). Close Brothers Limited is a subsidiary of Close Brothers Group plc.