BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC)

Transcription

1 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) Financial services

2 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) contents 1. Application and purpose 2 2. Conduct of business standards: general 4 3. Financial promotions 4. Pre-contractual disclosure Responsible lending Post contractual Arrears, default and recovery 36 (including repossessions) 8. Debt advice 9. Credit reference agencies 10. Prudential rules for debt management firms 11. Cancellation 12. Requirements for firms with interim permission for credit-related regulated activities 13. Guidance on the duty to give information under 60 sections 77, 78 and 79 of the consumer credit act Requirements in relation to agents 15. Second charge lending As of 1 April 2014, the Financial Conduct Authority (FCA) became responsible for the regulation of As part of its new regime, the FCA has introduced a new Sourcebook (CONC) which contains the detailed rules that replace those of the now former Act/Office of Fair Trading () regime Many of the rules and guidance contained in CONC have been transposed from the regime as well as other directives and industry protocols In some areas, the FCA has introduced new conduct and prudential rules and guidance for specific consumer credit activities CONC came into force on 1 April 2014 but firms have a transitional period of 6 months before the FCA will take enforcement action for non-compliance with CONC It is therefore vital for consumer credit firms to be fully aware of the implications of the detailed rules and take immediate action in preparation to comply, ideally by 1 April 2014, but most certainly by 1 October 2014 when the FCA s transitional period ends In July 2014, the FCA will be consulting on proposals for a cap on the cost of high-cost short-term credit. The FCA expects to publish final rules in November 2014, and enforce the price cap by 2 January 2015 Firms providing second charge loans will be subject to a different regulatory regime in the longer term when the Mortgage Credit Directive (Directive 2014/17/EU) is implemented, which introduces new conduct for both first and second charge mortgage lending. The FCA will be consulting later this year on the rules necessary to transpose this directive, which EU Member States are required to implement by 21 March Special thanks to: Hannah Eskell, Financial Services Advisory Wai Leung, Financial Services Advisory This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

3 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 1 Specialists from BDO s Financial Services practice have reviewed the CONC Sourcebook in detail and compared the rules and guidance with those of the regime to identify the key changes. This detailed guide is intended to be a technical reference for all consumer credit firms seeking to understand the impact of the newly proposed CONC rules and guidance. The guide also recommends the action firms will need to take in order to comply. The guide contains a line-by-line breakdown of the CONC Sourcebook and sets out: An overview of each CONC section or sub-section A cross reference to the rules and guidance in the regime Which of the proposed rules are new BDO s view of the practical implications of any changes. If you would like to know more about how BDO can assist you with the new FCA regulation of, please contact: DAVID MORREY Partner Financial Services Advisory +44 (0) david.x.morrey@bdo.co.uk ALEX ELLERTON Director Financial Services Advisory +44 (0) alex.ellerton@bdo.co.uk Gavin Reveley Specialist Financial Services Advisory +44 (0) gavin.reveley@bdo.co.uk Key to FCA provisions R Indicates a FCA rule under the Financial Services and Markets Act 2000 (as amended) and other powers. Failure to comply may lead to enforcement action by the regulator. G Indicates guidance on how to comply with the FCA s rules. Guidance is non-binding but strongly influences whether the FCA deems a firm to be compliant. D Indicates directions and that are binding upon the relevant persons. Key to OFT guidance and secondary legislation CBG Credit Brokers and Intermediaries Guidance CCA Act 1974 (as amended) CCAR 2010 (Advertisements) Regulations 2010, SI 2010/1970 CCAR 2004 (Advertisements) Regulations 2004, SI 2004/1484 DCG Debt Collection Guidance DMG Debt Management (and credit repair services) Guidance ILG Irresponsible Lending Guidance JGPPI FSA/OFT Joint Guidance on Payment Protection Products MCG Mental Capacity Guidance SCLG Second Charge Lending Guidance Text colour guide New rules and guidance that have been introduced by the FCA Where OFT guidance has been changed to a rule by the FCA

4 2 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 1. Application and purpose 1.1 Application, purpose and guidance on financial difficulties Application (G) CONC applies to creditrelated regulated activities as described in this chapter, unless the of a chapter, section or rule is described differently. Purpose (G) The regulator sets out in CONC the detailed obligations that are specific to credit-related regulated activities carried out by firms, and reminds those firms that parts of the FCA and PRA Handbook also apply to credit-related regulated activities. The Principles for Businesses: a reminder (G) 1.2 Who? What? Where? Who? What? Where? (R) Guidance on appointed representatives (G) The regulator reminds firms with respect to credit-related regulated activities and ancillary activities that the Principles for Businesses (PRIN) as a whole apply to them. CONC applies to firms with respect to credit- related activities and to firms carrying on the activity of operating an electronic system in relation to lending in relation to a borrower under a P2P agreement. Firms are responsible for ensuring the compliance of their employees, agents and other persons acting on its behalf. The regulator clarifies that although CONC does not apply directly to firms appointed representatives, firms will always be responsible for the acts and omissions of their appointed representatives in carrying on business for which firms have accepted responsibility.. See Principles for Businesses PRIN.. See Principles for Businesses PRIN For the first time, firms carrying on credit- related regulated activities will be subject to the regulator s high-level principles, interpretations of which can be difficult for the first time user. Not only will you be expected to conform with CONC, you must also take reasonable steps to ensure that your agents and other persons acting on your behalf comply with CONC. The following guidance has been introduced by the regulator: CONC 1.2.3G (1): Although CONC does not apply directly to a firm s appointed representatives, a firm will always be responsible for the acts and omissions of its appointed representatives in carrying on business for which the firm has accepted responsibility (section 39(3) of the Act). In determining whether a firm has complied with any provision of CONC, anything done or omitted by a firm s appointed representative (when acting as such) will be treated as having been done or omitted by the firm (section 39(4) of the Act). CONC 1.2.3G (2): Firms should refer to SUP 12 (Appointed representatives), which sets out which apply to firms using appointed representatives. CONC 1.2.4G: The credit-related regulated activities comprise consumer credit lending, credit broking, debt counselling, debt adjusting, debt administration, debt collecting, providing credit information services, providing credit references, operating an electronic system in relation to lending and consumer hiring. You will be held directly accountable for the creditrelated regulated activities carried on by your appointed representatives, so you have to be comfortable that they are abiding by the regulations.

5 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 3 Where? (R) CONC applies to any firm carrying on activities with a customer whose habitual residence is in the UK, from an establishment that is maintained by the firm or its appointed representative either inside or outside the UK. EEA territorial scope rule: compatibility with European law (R) CONC applies to outgoing ECA providers and does not apply to incoming ECA providers, in line with European law. Article 3(3) of, and the Annex to the Electronic Commerce Directive Article 3(3) of, and the Annex to, the Electronic Commerce Directive are now regulatory rules. 1.3 Guidance on financial difficulties Guidance on financial difficulties (G) The regulator provides guidance on matters that firms should be aware may indicate that a customer is in financial difficulties. The following guidance has been introduced by the regulator: CONC 1.3.1G: In CONC (unless otherwise stated in or in relation to a rule), the following matters, among others, of which a firm is aware or ought reasonably to be aware, may indicate that a customer is in financial difficulties: 1. consecutively failing to meet minimum repayments in relation to a credit card or store card; 2. adverse accurate entries on a credit file, which are not in dispute; 3. outstanding county court judgments for non-payment of debt; 4. inability to meet repayments out of disposable income or at all, for example, where there is evidence of non-payment of essential bills (such as, utility bills), the customer having to borrow further to repay existing debts, or the customer only being able to meet repayments of debts by the disposal of assets or security; 5. consecutively failing to meet repayments when due; 6. agreement to a debt management plan or other debt solution; 7. evidence of discussions with a firm (including a not-for-profit debt advice body) with a view to entering into a debt management plan or other debt solution or to seeking debt counselling. For the first time, regulations commit you to ensure that you can detect and therefore act upon indications that customers may be in financial difficulty.

6 4 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 2. Conduct of business standards: general 2.1 Application Application (G) CONC 2 applies as stated in each section. 2.2 General principles for credit-related regulated activities General principles for credit-related regulated activities (R) General principles (G) Section 2.2 applies to a firm with respect to creditrelated regulated activities. The regulator expects firms to pay due regard to the interests of its customers and treat them fairly. Paragraphs 2.3, 7.14 of ILG Paragraph 2.2 of CBG Paragraph 2.3 of DMG Paragraph 6.3 of SCLG You will have to be able to provide evidence that you have put the fair treatment of customers at the heart of your business. Duty not to use misleading names (R & G) The regulator expects firms not to carry on a creditrelated regulated activity under names that are likely to mislead customers about their status or the nature of their business, or in any other way. Section 25(1AD) of CCA Note that section 25(1AD) of CCA is now a regulatory rule. In addition, the following guidance has been introduced by the regulator CONC 2.2.4G (1): In relation to CONC 2.2.3R, an example of where a name may mislead is if the average customer of the firm is likely to be misled by the name of the firm. CONC 2.2.4G (2): Examples of the matters concerning a firm s status or the nature of its business about which its name may mislead customers include: a. the identity or nature of the firm; b. its commercial or profit-seeking status; c. its role, including any relationship with any other person; d. the extent of its authority; e. stating or implying that the firm is a public body or that it is related or connected in some way to a charitable, not-for-profit or governmental or local governmental organisation or to the courts; f. the nature of the products or services supplied; g. the cost of those products or services; and h. the scale of the business including its geographical scope. You will have to be clear, fair and not misleading which includes the name of your firm. Effect on other rules and legislation (R) The regulator clarifies that any specific rule or piece of guidance in CONC is without prejudice to the of PRIN, any other rules in the Handbook, the Consumer Credit Act 1974 and other applicable consumer protection legislation The following rule has been introduced by the regulator: CONC 2.2.5R: Any specific rule or piece of guidance in CONC is without prejudice to the of PRIN, any other rules in the Handbooks, the CCA and secondary legislation made and things done under it, the Consumer Protection from Unfair Trading Regulations 2008, the Unfair Terms in Consumer Contracts Regulations 1999, Part 8 of the Enterprise Act 2002 and any other applicable consumer protection The of the CONC rules should be conducted in the spirit of the Principles for Businesses, which are the fundamental obligations of all firms under the regulatory system, and should not be applied in contravention of any existing law or regulation. 2.3 Conduct of business: lenders and restrictions on provision of credit card cheques Application (R) Section 2.3 of CONC applies to firms with respect to consumer credit lending.

7 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 5 General conduct (R & G) Provision of credit card cheques (R) The regulator expects firms to explain the key features of a regulated credit agreement to monitor their customers repayment records, and to take reasonable steps to satisfy themselves The regulator sets out the required conditions for a firm to provide credit card cheques to a customer. The regulator expects firms to explain the key features of a regulated credit agreement to monitor their customers repayment records, and to take reasonable steps to satisfy themselves that any credit brokers with whom they deal are authorised. Sections 51A and 51B of CCA 2.4 Credit references conduct of business lenders and owners Application (R) CONC 2.4.2R applies to firms with respect to consumer credit lending and firms with respect to consumer hiring. Disclosure of name and address of credit reference agencies consulted (R) Searching credit files (G) Where lenders and owners are not willing to make a regulated credit agreement, the regulator expects lenders and owners to inform the credit broker of the name and address of any credit reference agency from which lenders and owners have applied for information about the financial standing of the customer. The regulator expects firms not to leave evidence of an on a credit file where a customer is not yet ready to apply. Regulation 2 of SI 1977/330 Paragraph 3.13 (box 2) of ILG Paragraph 2.2 of ILG and paragraph 1.27 of CBG are now regulatory rules. In addition, the following guidance and rule has been introduced by the regulator CONC 2.3.4R: A firm must take reasonable steps to satisfy itself that any credit brokers with whom the firm deals are authorised persons or appointed representatives. Note that section 51A(2), 51A(3), 51A(4), 51A(5), 51A(6), 51B(1), 51B(2), 51B(3), 51B(5) of CCA are now regulatory rules that do not feature in regulation or Note that regulation 2 of SI 1977/330 is now a regulatory rule. You must take the necessary steps to ensure that you only deal with credit brokers that are either authorised by the FCA or appointed representatives of an authorised firm. You must only provide credit card cheques to a customer who has asked for them. If you, as a lender or owner, decide not to enter into a regulated agreement with a customer, you are obliged to inform the credit broker of any credit reference agencies that you used. When undertaking a credit search, you should not leave evidence of an on a credit file before the customer has agreed to apply for the product, and where practicable, you should facilitate customers shopping around for credit by offering a quotation search facility.

8 6 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 2.5 Conduct of business credit broking Application (R & G) Section 2.5 of CONC applies to firms with respect to consumer credit broking. Conduct of business (R & G) expectations of the conduct of business of firms with respect to credit broking. Paragraphs 3.9, 4.22, of CBG Paragraph 2.2 of ILG Paragraphs 3.9l, 3.9q, 3.9r, 3.9u, 3.9w, 3.9x, 3.9y, 4.22, of CBG and paragraph 2.2 of ILG are now regulatory rules. You must be transparent in all your dealings with the customer. Conduct of business: credit references (R) The regulator requires credit brokers who are not negotiators to give notice to customers of the name and address of any credit reference agency of which they have been informed, within seven working days after receiving a request in writing for any such information. Regulations 3 and 4 of SI 1977/330 Note that regulations 3 and 4 of SI 1977/330 are now regulatory rules. You are required to be transparent with the customer in your use of credit reference agencies. Searching credit files (G) The regulator expects firms not to leave evidence of an on a credit file where a customer is not yet ready to apply. Paragraph 3.13 (box 2) of ILG When undertaking a credit search, you should not leave evidence of an on a credit file before the customer has agreed to apply for the product, and where practicable, you should facilitate customers shopping around for credit by offering a quotation search facility. Unfair business practices: credit brokers (R) The regulator sets out the rules for consumer credit brokers on unfair business practices. Paragraphs 3.9, 4.17, 4.26, 4.41 of CBG Paragraph 2.62, 2nd bullet of JGPPI Paragraphs 3.9a, 3.9b, 3.9c, 3.9f, 3.9g, 3.9h, 3.9i, 3.9j, 3.9s, 3.9t, 3.9aa, 4.17c, 4.17f, 4.26d, 4.26e, 4.26f, 4.26g, 4.26h, 4.41h, 4.41i, 4.41k of CBG, and paragraph 2.62, 2nd bullet of JGPPI are now regulatory rules. You must be considerate of customers and their rights when communicating with them.

9 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 7 Guidance on unfair business practices (R & G) The regulator sets out the guidance for consumer credit brokers on unfair business practices. Paragraphs 2.2, 3.9, 3.71, 4.9, 4.17, 6.19 of CBG The following guidance has been introduced by the regulator: CONC 2.5.9G (8): An example of where it is likely to be unfair for a credit broker in receipt of a customer s personal data to pass it to a third party, is where the personal data is passed on in return for a fee to a claims management firm, without the customer s consent. CONC R (1): In CONC 2.5.8R(14), payment protection product means a product or feature of a product designed to offer customers short-term protection against potential loss of income, by providing the means for them to meet (or temporarily suspend) their financial obligations including repayments under a credit agreement. Payment protection products include, in particular, short term income protection, debt freeze or debt waiver; CONC R (2): In CONC 2.5.8R(14), short-term income protection means a contract of insurance which provides a pre-agreed amount paid directly to the policyholder or the policyholder s nominee in the event that the policyholder experiences involuntary unemployment or incapacity as a result of accident or sickness and may be combined with other forms of insurance cover or include other benefits and which: a. has a maximum time-limited benefit duration; b. is written for a term which is less than five years and not predetermined by the term of any credit agreement; and c. can be terminated by the insurer. CONC G: In CONC 2.5.8R(14) and R(1), the protection offered by a payment protection product will typically be triggered by life events such as accident, sickness and/or unemployment, although other events may be covered where they impact on the consumer s ability to meet certain financial commitments. The triggering events will usually be specified in the agreement but may be subject to some discretion (by the provider) at the time of claim. 2.6 Conduct of business: debt counselling, debt adjusting and providing credit information services Application (R) Section 2.6 of CONC applies to firms with respect to debt counselling, debt adjusting and providing credit information services. Conduct of business (R) The regulator expects firms to bring to the customer s attention how the firm uses customers personal data. Paragraph 2.5 of DMG Note that paragraph 2.5e of DMG is now a regulatory rule. Where customers have not consented, you should not pass their personal data to claims management firms in return for a fee. You must inform customers of how you use their personal data.

10 8 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) Unfair business practices (R) The regulator sets out rules for firms to follow to prevent unfair business practices when making communications and visits to customers. Paragraphs 3.12, 3.15, 3.18 of DMG Note that paragraphs 3.12o, 3.15a, 3.15b, 3.15c, 3.18x of DMG are now regulatory rules. You must treat the customer fairly, for example when using premium rate telephone numbers and in relation to visits to customers. Guidance on unfair business practices (G) The regulator sets out guidance for firms to follow to prevent unfair business practices when making communications and visits to customers. Paragraph 3.13 of DMG The following guidance has been introduced by the regulator: CONC 2.6.4G (2): Where a long telephone call is required, the firm should ensure the call is not made on a premium rate number. CONC 2.6.4G (3): It is unlikely to be reasonable for it to be necessary for a customer to make a call exceeding one hour to a firm in relation to debt counselling or debt adjusting. Where a call longer than 15 minutes is required for the firm to provide its service to the customer, the firm should ensure the call is not made on a premium rate phone number. CONC 2.6.4G (4): It is unlikely to be reasonable for a call by the customer to check on the status of the customer s case to last more than five minutes. You should not require customers to make lengthy calls on premium rate telephone numbers. 2.7 Distance marketing Application (R) Section 2.7 of CONC applies to firms carrying on distance marketing activity from an establishment in the UK, with or for a consumer in the UK or another EEA State. The distance marketing disclosure rules (R) The regulator sets out rules regarding the provision of distance marketing information in good time before conclusion of a distance contract or offer, and abbreviated rules where a distance contract is also a contract for payment services. Regulation 7 of SI 2004/2095 Paragraph 5 of Schedule 6 of SI 2009/209 Recitals 21 and 23, and articles 3 and 4 of the DMD Regulations 10(2) and 10(5) of SI 2010/1013 Sections 61B(2) (b) and 61B(2)(c) of the CCA Note that regulation 7(1), 7(2), 7(3), 7(4), 7(5), 7(6) of SI 2004/2095; paragraph 5 of Schedule 6 of SI 2009/209; recitals 21 and 23, and articles 3(1), 3(2), 3(3)(a), 3(4) and 4(5) of the DMD; regulations 10(2) and 10(5) of SI 2010/1013; and sections 61B(2)(b) and 61B(2)(c) of the CCA are now regulatory rules.

11 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 9 Terms and conditions, and form (R & G) The regulator expects firms to communicate to the consumer all the contractual terms and conditions and the information referred to in the distance marketing disclosure rules in a durable medium, in good time before the consumer is bound by any distance contract or offer. Regulation 8(1) of SI 2004/209 Articles 4(5) and 5(1) of the Distance Marketing Directive Note that regulation 8(1) of SI 2004/2095, and articles 4(5) and 5(1) of the Distance Marketing Directive are now regulatory rules. In addition, the following guidance has been introduced by the regulator: CONC 2.7.7G (1): Activities in relation to a consumer hire agreement are not financial services within the meaning of the Distance Marketing Directive and do not fall within CONC 2.7. Instead such agreements fall within the Consumer Protection (Distance Selling) Regulations 2000 (SI 2000/2334). CONC 2.7.7G (2): A firm will provide information, or communicate contractual terms and conditions, to a consumer if another person provides the information, or communicates the terms and conditions, to the consumer on its behalf. The regulator will expect you to have provided the consumer with the correct information if another person provides this on your behalf. Commencing performance of the distance contract (R) The regulator expects the performance of the distance contract to begin only after the consumer has given approval. Article 7(1) of the Distance Marketing Directive. Note that article 7(1) of the Distance Marketing Directive is now a regulatory rule. Customer approval will need to be evidenced prior to the commencement of the distance contract. Exception: successive operations (R) The regulator clarifies that the rules in CONC 2 apply only to the initial service agreement, where a distance contract comprises of an initial service agreement, followed by successive operations or a series of separate operations of the same nature performed over time. Regulation 5 of SI 2004/2095 Article 1(2) and recital 16 and 17 of DMD Note that regulation 5, 5(1), 5(2) of SI 2004/2095; and recital 16, recital 17, and article 1(2) of the Distance Marketing Directive are now regulatory rules. Where a distance contract comprises of an initial service agreement, successive operations of the same nature can be exempt from undertaking the originally needed in establishing the initial agreement. Exception: voice telephony communications (R) The regulator clarifies that in the case of a voice telephony communication, and subject to the explicit consent of the consumer, only the abbreviated distance marketing information needs to be provided during that communication. Regulation 4 of SI 2004/2095 Recitals 21 and 23, and article 3(1), 3(3) and 5(1) of DMD Note that regulation 4(b) of SI 2004/2095; recitals 21 and 23, and article 3(1), 3(3)(b) and 5(1) of the Distance Marketing Directive are now regulatory rules During telephony communications, you will need to get explicit consent from the customer if you wish to use the abbreviated distance marketing information. Exception: means of distance communication not enabling disclosure (R) The regulator clarifies that firms may provide the distance marketing information and the contractual terms and conditions after the conclusion of a distance contract, if the contract has been concluded at a consumer s request using a means of a distance communication that does not enable the provision of that information beforehand. Article 5 (2) of DMD Note that article 5 (2) of the Distance Marketing Directive is nor regulatory rule. You will have to be able to prove that the channel of communication does not allow for the provision of distance marketing information and the contractual terms before the conclusion of the transaction at the customers request.

12 10 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) Exception: contracts for payment services (G) The regulator clarifies that where a distance contract covers both payment services and non-payment services, firms will need to comply with the information in Part 5 of the Payment Services Regulations. The following guidance has been introduced by the regulator: CONC G: Where a distance contract covers both payment services and non-payment services, the exception in CONC 2.7.2R(2) applies only to the payment services aspects of the contract. A firm taking advantage of this exception will need to comply with the information in Part 5 of the Payment Services Regulations. Where a distance contract covers both payment services and non-payment services, the information exemptions apply only to the payment services aspects of the contract. A firm taking advantage of these exceptions still needs to comply with the information in Part 5 of the Payment Services Regulations. Customer s right to request paper copies and change the means of communication (R) The regulator entitles the consumer, at request, to receive the contractual terms and conditions on paper at any time during the contractual relationship. Regulations 8(2) and (4) of SI 2004/2095 Article 5(3) of DMD Note that regulation 8(2) and 8(4) of SI 2004/2095, and article 5(3) of the DMD are now regulatory rules. Your customers are entitled to a paper copy of their contractual terms and conditions if they request this. They also have a right to ask you to change the way you communicate with them if to do so is compatible with the service. Unsolicited services (R) The regulator expects that firms must not enforce, or seek to enforce, any obligations under a distance contract against a consumer in the event of an unsolicited supply of services. The absence of a reply does not constitute consent. Regulation 15 of SI 2004/2095 Article 9 of DMD Note that article 9 of the DMD and 15 of SI 2004/2095 are now regulatory rules. You must not enforce contracts that consumers have not asked for and explicitly agreed to. Mandatory nature of consumer s right (R) If a consumer purports to waive any of the consumer s rights created or implied by the rules in section 2.7 of CONC, the regulator expects firms not to accept that waiver, and not seek to rely on or enforce it against the consumer. Article 12 of DMD Note that article 12 of the DMD is now a regulatory rule. The rights of the consumer under distance marketing rules are mandatory, and you must not accept any purported waiver of these rights. Contract governed by law of a third party state (R) If a firm proposes to enter into a distance contract with a consumer that will be governed by the law of a country outside the EEA, the regulator requires firms to ensure that the consumer will not lose the protection created by the rules in CONC 2 if the distance contract has a close link with the territory of one or more EEA States Regulation 16(3) of SI 2004/2095 Articles 12 and 16 of DMD Note that regulation 16(3) of SI 2004/2095, and articles 12 and 16 of the DMD are now regulatory rules. If your contract with your customers is closely linked with an EEA territory, then you must continue to afford your customers the protection of the distance marketing rules. 2.8 E-commerce Application (R) Section 2.8 of CONC applies to a firm carrying on an electronic commerce activity from an establishment in the UK with or for a person in the UK or another EEA State.

13 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 11 Information about the firm and its products or services (R) expectations on a firm to provide information about the firm and its products or services. Articles 5-7 of the E-Commerce Directive Note that articles 5(1), 5(2), 6, 7(1) of the DMD are now regulatory rules. When carrying on your services using electronic equipment for the processing of data at a distance (e.g. business conducted over the internet), you must provide information about your firm s name, address, and contact details. If the purpose of your communication is a commercial one, you must make this clear and make clear also if this is a communication that has not been asked for by the consumer. Requirements relating to the placing and receipt of orders (R) expectations on firms with respect to the placing and receipt of orders. Articles 10, 11 of the E-Commerce Directive The following rule has been introduced by the regulator: CONC 2.8.7R: For the purposes of CONC 2.8.6R(3), an order and an acknowledgement of receipt are deemed to be received when the parties to whom they are addressed are able to access them. Note that articles 10(1), 10(3), 11(1), 11(2) of the E-Commerce Directive are now regulatory rules. Before the consumer agrees to enter into a contract, you must inform them of the steps that lead up to the conclusion of the contract, including how they can check and correct any input errors. Once the contract is concluded, you must acknowledge receipt of any order immediately. Exception: contract concluded by (R) The regulator clarifies that the relating to the placing and receipt of orders do not apply to contracts concluded exclusively by exchange of or by equivalent individual communications. Articles 10(4), 11(3) of the E-Commerce Directive Note that articles 10(4), 11(3) of the E-Commerce Directive are now regulatory rules. 2.9 Prohibition of unsolicited credit tokens Application (R) Section 2.9 of CONC applies to any firm. Prohibition (R & G) The regulator requires that firms must not give a person a credit-token if they have not asked for it. Section 51 of CCA The following guidance has been introduced by the regulator: CONC 2.9.3G: Section 51 of the CCA was repealed by article 20(15) of the Financial Services and Markets Act 2000 (Regulated Activities)(Amendment)(No 2) Order 2013 (SI 2013/1881). However, section 51 is saved for the purposes of regulation 52 of the Payment Services Regulations, the effect being that the section continues to apply in relation to a regulated credit agreement in place of regulation 58(1)(b) of the Payment Services Regulations. Note that section 51 of CCA is now a regulatory rule. You cannot provide consumerswith credit cards, vouchers, stamps, booklets or any other items that will enable the consumer to obtain cash, goods or services on credit, without their express request.

14 12 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 2.10 Mental Capacity Guidance Application (G) Section 2.10 of CONC applies to firms in relation to granting credit under a regulated credit agreement, significantly increasing the amount of credit under a regulated credit agreement; and setting a credit limit for running account credit. Paragraph 2.4 and footnote 2 of MCG The following guidance has been introduced by the regulator: CONC G (3): References in this section to a firm s knowledge, understanding, observation, suspicion, assumption or belief includes that of the firm s employees, appointed representatives, agents and any others who act on behalf of the firm When assessing, evaluating, or concluding on a customer s mental capacity, the knowledge, understanding, observations, suspicions, assumptions and beliefs that you use in doing so are considered by the regulator to include that of employees, appointed representatives, agents and any others who act on your behalf. Mental capacity (G) The regulator provides guidance on mental capacity. Paragraphs 2.1, 3.1, 3.2, 2.9, 2.10 of MCG You should not automatically take the view that a customer lacks the capacity to make an informed borrowing decision just because you know, believe or suspect that the customer may have some form of mental capacity limitation. Indications that a person may have some form of mental capacity limitation (G) The regulator provides guidance on matters of what may indicate customer mental capacity limitation. Paragraphs 3.14, 3.15 of MCG You should take steps to ensure that decisions made by customers with mental capacity limitations are informed, and the firm s lending decisions are responsible. Practices and procedures (G) The regulator sets their expectations for firms practices and procedures in relation to the fair treatment of customers, who they understand or reasonably suspect have mental capacity limitations. Paragraphs 2.5, 2.11, , 4.8, 4.20 of MCG The following guidance has been introduced by the regulator: CONC G (2): It would not be inappropriate not to grant credit nor significantly increase the amount of credit under an agreement nor set a credit limit for running account credit where the firm reasonably believes the agreement or decision would be voidable at the instance of the customer or the agreement is void. CONC G (2): CONC 7.2.1R require firms to establish and implement arrears policies and procedures, which include policies and procedures for the fair and appropriate treatment of customers the firm understands or reasonably suspects of having mental capacity limitations. You should take reasonable steps to ensure that you have suitable business practices and procedures in place for the fair treatment of customers who you understand, or reasonably suspect, have or may have a mental capacity limitations.

15 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 13 Allowing sufficient time for decisions (G) Where a firm understands, or reasonably suspects a customer has or may have a mental capacity limitation, the regulator expects the firm to consider allowing the customer sufficient time to make an informed borrowing decision. Paragraphs MCG Sustainability of borrowing (G) Where a firm understands, or reasonably suspects a customer has or may have a mental capacity limitation, the regulator expects the firm to apply a high level of scrutiny to the customer s for credit, in order to mitigate the risk of the customer entering into unsustainable borrowing. Paragraphs 4.32, 4.33, 4.34, 4.43 MCG You should balance the risk of a customer taking on unsustainable borrowing against inappropriately or unnecessarily denying credit to the customer. If you know, believe or suspect that a customer has or may have a mental capacity limitation, you should carry out an affordability assessment that does not place overreliance on information provided by the customer.

16 14 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 3. Financial Promotions 3.1 Application Who? What? (R & G) When lending, CONC 3 applies to a firm unless an individual rule specifies differently. This is in respect of credit agreements, credit broking and operating an electronic system. Specific rules also apply to debt counselling, debt adjusting, consumer hire agreements and credit information services. Where? (R) CONC 3 applies to a firm in relation to a communication with, or the communication or approval for communication of a financial promotion to a person in the UK. 3.2 Financial promotion general guidance Financial promotion general guidance (G) The regulator clarifies the guidance on the restriction on financial promotion by unauthorised persons and on unsolicited telephone calls, fax messages and electronic mail messages for direct marketing purposes. ICO guidance on The Privacy and Electronic Communications (EC Directive) Regulations The clear fair and not misleading rule and general The clear, fair and not misleading rule and general (R) The regulator expects firms to ensure that a communication or a financial promotion is clear, fair and not misleading. Paragraph 2.2 of ILG Paragraph 3.16 of DMG Paragraph 3.1 of CBG The following guidance has been introduced by the regulator: CONC 3.2.1G: The rules in this chapter adopt various concepts from the restriction on financial promotion by unauthorised persons in section 21(1) of the Act (Restrictions on financial promotion). Guidance on that restriction and the communications which are exempt from it is contained in PERG 8 (Financial promotion and related activities) and that guidance will be relevant to interpreting these rules. In particular, guidance on the meaning of: 1. communicate is in PERG 8.6 (Communicate); and 2. invitation or inducement and engage in investment activity (two elements which, with communicate, make up the definition of financial promotion ) is in PERG 8.4 (Invitation or inducement). Note that paragraphs 2.2 of ILG, 3.16 of DMG and 3.1 of CBG are now regulatory rules. In addition, the following rule has been introduced by the regulator: CONC 3.3.1R (2): If, for a particular communication or financial promotion, a firm takes reasonable steps to ensure it complies with (1), a contravention does not give rise to a right of action under section 138D of the Act. [Note: CONC 3.3.1R (1) states that a firm must ensure that a communication or a financial promotion is clear, fair, and not misleading.] You must ensure that your financial promotions, including those communicated by your appointed representatives in connection with the credit-related regulated activities carried on by your firm, are clear, fair and not misleading. You should take note that CONC 3.2.1G refers to chapter 8 of the FCA s Perimeter Guidance ( PERG ) regarding Financial promotion and related activities in its relevance to interpreting the rules in CONC 3. You must ensure that communications and financial promotions to your customer are clear, fair and not misleading.

17 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 15 General (R & G) general on firms communications and financial promotions. Paragraphs 3.7 and 4.8 of CBG Paragraph 5.2 of ILG Regulation 3 of CCAR 2004 Regulation 3 of CCAR 2010 The following guidance has been introduced by the regulator: CONC 3.3.4G (2): If credit is described as pre-approved, in accordance with CONC R the provision of the credit should be free of any conditions regarding the customer s credit status, and the lender or, in relation to a P2P agreement the operator of an electronic system in relation to lending, should have carried out the required assessment under CONC 5. Note that paragraphs 3.7o, 4.8a of CBG, and paragraph 5.2 of ILG are now regulatory rules. Note that regulation 3 of CCAR 2004 and regulation 3 of CCAR 2010 are now regulatory rules. You must not suggest or imply to the consumer that credit is available regardless of their financial circumstances or status. Guidance on clear, fair and not misleading (G) The regulator provides guidance on clear, fair and not misleading firm communications and financial promotions. Paragraphs 3.7 and 3.9 of CBG Paragraph 3.18 of DMG The following guidance has been introduced by the regulator: CONC 3.3.6G: If a communication or a financial promotion names the FCA, PRA or both as the regulator of a firm and refers to matters not regulated by the FCA, PRA or both, the firm should ensure that the communication or financial promotion makes clear that those matters are not regulated by the FCA, PRA or both. CONC 3.3.7G: When communicating information, a firm should consider whether omission of any relevant fact will result in information given to the customer being insufficient, unclear, unfair or misleading. CONC 3.3.8G: If a communication or a financial promotion compares a product or service with one or more other products (whether or not provided by the firm), the firm should ensure that the comparison is meaningful and presented in a fair and balanced way. You should not use, in your communications and financial promotions, the names of the regulator when you refer to matters that are not under their regulatory supervision. Unfair business practices: financial promotions and communications (G) The regulator sets out examples of practices that are likely to contravene the clear, fair and not misleading rule. Paragraphs 3.7, 3.9 of CBG Paragraphs 3.18, 3.20 of DMG Paragraph 5.13 of ILG. Guidance on misleading introductions (G) The regulator sets out examples of practices that are likely to mislead a customer as to the availability of a particular credit product. Paragraph 3.9p (box) of CBG

18 16 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 3.4 Risk warning for high-cost short-term credit Risk warnings (R & G) The regulator requires a prominent risk warning to be included in firms' financial promotions. 3.5 Financial promotions about credit agreements not secured on land Application (R) Section 3.5 of CONC applies to firms carrying on consumer credit lending, financial promotions relating to regulated credit agreements and agreements that would be regulated but for the relevant provisions. Application Application Prohibition on financial promotion where goods etc. not sold for cash (R) Content of financial promotions (R) Guidance on showing interest rates and cost of credit (G) Where a financial promotion indicates a firm is willing to provide credit, the regulator requires the firm to hold itself out as prepared to sell the goods or provide the services (as the case may be) for cash. rules on the content of financial promotions that includes a rate of interest or an amount relating to the cost of credit. The regulator expects that the rate of interest shown for the purpose of CONC 3.5.3R(1) to not be limited to an annual rate of interest but include a monthly or daily rate or an APR. Section 45 of CCA Regulation 4 of CCAR 2010 Paragraph 6.7 of BIS Guidance on CCAR 2010 The following rules and guidance have been introduced by the regulator: CONC 3.4.1R (1): A firm must not communicate or approve for communication a financial promotion in relation to high-cost short-term credit, unless it contains the following risk warning: Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk. CONC 3.4.1R (2): The risk warning in (1) must be included in a financial promotion contained in an electronic communication unless by reason of the limited space available on the medium in question it is not reasonably practicable to include the warning. CONC 3.4.1R (3): Instead of the website address in paragraph (1), a firm may include the Money Advice Service s logo registered community trade mark number EU CONC 3.4.1R (4): The risk warning must be included in a financial promotion in a prominent way. CONC 3.4.2G: The Money Advice Service has granted a licence to use the logo referred to in CONC 3.4.1R(3) for the purposes of that rule. The terms of the licence are available from the Money Advice Service. Note that section 45 of CCA is now a regulatory rule. Note that regulations 4(1), 4(1)b, 4(2) of CCAR 2010 are now regulatory rules. You must include a prominent risk warning in your financial promotions of high-cost short- term credit. If you advertise that you provide credit in the supply of goods and services, you must hold yourself out as being prepared to supply these goods and services for cash. You must include a representative example and your postal address with your financial promotion if you have stated an interest rate or an amount relating to the cost of credit.

19 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) 17 Representative example (R) rules on the content of a representative example. Regulation 5 of CCAR 2010 Article 4 of CCD Note that regulation 5(1), 5(1)f, 5(2), 5(3), 5(4), 5(5), 5(6) of CCAR 2010 and article 4 of CCD are now regulatory rules. The representative example that you provide must include the rate of interest, the representative APR, the total amount of credit and any charges. This includes, the contract duration, the total amount payable and the amount of each repayment of credit. Guidance on the representative example (G) The regulator provides guidance on the content of a representative example. Paragraphs 6.8, 6.13 of BIS Guidance on regulations implementing the Consumer Credit Directive The following guidance has been introduced by the regulator: CONC 3.5.6G (2): Where the agreement provides for compounding, the rate of interest in CONC 3.5.5R(1) should generally be the effective annual interest rate and lenders should use the same assumptions to calculate this interest rate as they do for the APR; the assumptions set out in CONC App 1.2. If a firm uses a different rate to calculate the rate of interest in CONC 3.5.5R(1) it must clearly explain this to the customer, so that the customer is clear whether and to what extent the rate used is comparable with rates shown by other lenders. CONC 3.5.6G (5): The total amount of credit equates to the sum available to the borrower to use and does not include charges which are financed by the credit agreement; those are part of the total cost of credit. CONC 3.5.6G (6): For showing the cash price, the total cash price of all items should be shown, together with the price of each item individually. You are required to include in your promotions the correct rate of interest, charges, total cost of credit and cash price. You should include any charges that are related to the credit agreement in the total cost of credit, not under the total amount of credit. Other financial promotions requiring a representative APR (R & G) The regulator sets out their requirement for the representative APR to be included within a financial promotion. Regulation 6 of CCAR 2010 Note that regulation 6 of CCAR 2010 is now a regulatory rule. The following guidance has been introduced by the regulator: CONC 3.5.8G: Whether or not a reference to speed or ease in CONC 3.5.7R(1)(c) constitutes an incentive to apply for credit or enter into an agreement under which credit is provided would depend upon the circumstances, including whether it is likely to persuade or influence a customer to take those steps or is merely a factual statement about the product or service. You must include the representative APR within your financial promotion if your communication indicates to consumers that credit is available to them, or if the terms under which you offer credit are more favourable that those of other lenders. Annual percentage rate of charge (R) The regulator requires an APR in a financial promotion to be shown as %APR, for APR that is subject to change to be accompanied by the word variable, and for representative APR to be accompanied by the word representative. Regulation 7 of CCAR 2010 Note that regulation 7 of CCAR 2010 is now a regulatory rule. You must show the APR in your financial promotion as %APR ; you must include the word variable where an APR is subject to change; and you must include the word representative where representative APR is shown.

20 18 BDO S GUIDE TO THE FCA S CONSUMER CREDIT SOURCEBOOK (CONC) Ancillary services (R) Where there is an obligation to enter into a contract for an ancillary service in order to obtain the credit or to obtain it on the terms and conditions promoted; and where the cost of that ancillary service cannot be determined in advance, the regulator expects the financial promotion to include a clear and concise statement of this. Regulation 8 of CCAR 2010 Note that regulation 8 of CCAR 2010 is now a regulatory rule. You must make clear to the customer any requirement on them to enter into a contract for an ancillary service that is compulsory in order to obtain credit under the terms promoted, and if the cost of the ancillary service is indeterminate in advance. Security (R) Restricted expressions (R) Total charge for credit and APR (R) Where security is or may be required, the regulator expects financial promotion to state type of security required. restrictions with respect to expressions within financial promotions. rules with respect to the calculation of the total charge for credit and APR. Regulation 9 of CCAR 2010 Regulation 10 of CCAR 2010 Paragraphs 1 4 of schedule to CCAR Financial promotions about credit agreements secured on land Application (R) Section 3.6 of CONC applies in relation to firms financial promotions of regulated credit agreements secured on land, for firms carrying on consumer credit lending, and firms carrying on credit broking. Definitions (R) Prohibition on financial promotion where goods etc not sold for cash (R) The regulator defines the meaning of relevant date for a financial promotion relating to credit to be provided under a credit agreement. Where a financial promotion indicates a firm is willing to provide credit, the regulator requires the firm to hold itself out as prepared to sell the goods or provide the services (as the case may be) for cash. Regulation 1 of SI 1980/51 Section 45 of CCA Note that regulation 9 of CCAR 2010 is now a regulatory rule. Note that regulation 10 of CCAR 2010 is now a regulatory rule. Note that paragraphs 1 to 4 of the schedule to CCAR 2010 are now regulatory rules. Note that regulation 1 of SI 1980/51 is now a regulatory rule. Note that section 45 of CCA is now a regulatory rule. Where security is required to obtain credit under the terms promoted, this must be made clear to the customer. You must not include any expressions within your financial promotion that are not true, e.g. you should only use the expression interest free when the terms of the credit agreement allow for the total amount payable to not exceed the cash price. When promoting a running-account credit arrangement, for credit limits below 1,200, if the limit is unknown the credit limit must be assumed to be an amount equal to that maximum limit. You must recognise the regulator s definition of relevant date. If you advertise that you provide credit in the supply of goods and services, you must hold yourself out as being prepared to supply these goods and services for cash.