Consumer credit law for Insolvency Practitioners (IPs)

Transcription

1 Page 1 Cnsumer credit law fr Inslvency Practitiners (IPs) Prduced in partnership with Carline Castle f Squire Pattn Bggs (UK) LLP This Practice Nte prvides a summary f cnsumer credit law fllwing the transfer f regulatry versight t the Financial Cnduct Authrity (FCA). In particular, the Practice Nte will examine sme f the changes which have impacted upn inslvency practitiners (IPs). Fr further details n cnsumer credit agreements, see Practice Ntes: Regulated activities relating t cnsumer credit, FCA supervisry apprach t cnsumer credit, The FCA cnsumer credit regime: an verview f rules relating t arrears, default and recvery (a subscriptin t Lexis PSL Financial Services is required). Regulatry versight On 1 April 2014, respnsibility fr cnsumer credit transferred frm the Office f Fair Trading (OFT) t the FCA. Part f the cnsequence f this was t replace the OFT's licensing scheme under the Cnsumer Credit Act 1974 (CCA 1974) with the FCA's authrisatin regime under Part IV (A) f the Financial Services and Markets Act 2000 (FSMA 2000). If a firm had: CCA 1974 FSMA 2000, Pt IV a cnsumer credit licence n 31 March 2014, and applied (befre 1 April 2014) fr an interim permissin under FSMA 2000 (and paid the fee) it cntinued t be authrised frm 1 April 2014 (but was given a landing slt during which it wuld need t apply either a full r limited permissin). If a firm did nt satisfy bth f these requirements n 31 March 2014, its cnsumer credit licence ended immediately befre 1 April There is a general prhibitin under FSMA 2000 that n ne may carry n a regulated activity in the United Kingdm, r purprt t d s, withut being authrised r exempt. If a persn r firm des s, there are a number f significant cnsequences. These include: (a) criminal sanctins and (b) unenfrceability f agreements entered int by an unauthrised firm r persn. FSMA 2000, ss 19, 23(1)

2 Page 2 What type f cnsumer credit activities require authrisatin? The activities which required a cnsumer credit licence frm the OFT under the CCA 1974 befre 1 April 2014 nw bradly require an authrisatin under Part IV (A) f FSMA 2000 frm the FCA (but there is a new regulated activity f perating an electrnic system in relatin t lending). The regulated activities are set ut in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, SI 2001/544 (the RAO) and include: Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, SI 2001/544 entering int a regulated credit agreement as the lender (including exercising, r having the right t exercise, the lender's rights and duties under a regulated credit agreement) SI 2001/544, art 60B entering int a regulated cnsumer hire agreement as the wner (including exercising, r having the right t exercise, the wner's rights and duties under a regulated cnsumer hire agreement) SI 2001/544, art 60N credit brking SI 2001/544, 36A debt-related cnsumer credit activities (debt adjusting, debt cunselling, debt cllecting and debt administratin) SI 2001/544, arts 39D, 39E, 39F, 39G perating an electrnic system in relatin t lending; and SI 2001/544, art 36H prviding credit infrmatin services and credit references SI 2001/544, arts 89A, 89B These activities are all specifically defined in the RAO (als see Practice Nte: What is a Regulated Cnsumer Credit Agreement? a subscriptin t Lexis PSL Financial Services is required).

3 Page 3 Interim permissin Firms wh previusly had a cnsumer credit licence frm the OFT under the CCA 1974 needed t register with the FCA befre 1 April 2014 fr an 'interim permissin' if they wanted t cntinue credit-related regulated activities frm 1 April The interim permissin regime was intrduced t prvide firms with a breathing space t adjust t the new FCA regulatin regime. The interim permissin nly authrises a firm t carry ut the same activities as under its cnsumer credit licence issued by the OFT. If, after 1 April 2014, a firm wants t carry ut anther regulated activity, it will need t apply fr FCA authrisatin fr that new activity and all the ther activities it wishes t be authrised fr. The interim permissin regime runs until 1 April Any firm wanting t cntinue t undertake regulated activities will need t have applied t the FCA during their applicatin windw (which will be n later than 1 April 2016) fr either full r limited permissin frm the FCA. The interim permissin cntinues until the FCA has made a decisin n the firm's applicatin fr a full r limited permissin. Between 1 April 2014 and 31 March 2016, all firms with an interim permissin are given a three mnth perid t apply fr full r limited permissin. If this date is missed, the interim permissin will lapse and the firm will n lnger have the FCA's permissin. Whether r nt a firm needs full r limited permissin will depend n the nature f the activity it is undertaking. A firm with 'full' permissin is subject t the full FCA regime. A firm with a 'limited' permissin (which is limited t certain lw-risk activities) is subject t a lighter-tuch regime. Overall impact f transfer frm OFT t FCA The impact f the transfer f cnsumer credit frm the OFT t the FCA is significant. It des nt necessarily fllw that if a firm did nt need a cnsumer credit licence, it des nt need an interim permissin frm the FCA. Firms undertaking credit-related regulated activities nw have a much mre detailed system f regulatin. This includes: the FCA Handbk (which includes mdules n dispute reslutin, cnduct, systems and cntrls and apprved persn) firms needing t have individuals perfrming 'significant influence functins' t be pre-apprved by the FCA (which is entirely new) firms needing t bear in mind sme f the significant changes between the ld and new regimes, including fr example, a new requirement n firms in CONC 1.2.2R t: ensure their agents and emplyees cmply with CONC, and take reasnable steps t ensure ther persns acting n their behalf cmply with CONC firms needing t understand the cncept f principle-based regulatin by the FCA

4 Page 4 Impact f the transfer frm the OFT t the FCA n prfessinal firms Under the cnsumer credit licensing regime administered by the OFT, accuntancy firms and IPs had the benefit f grup licences issued t their regulatrs (fr example, the Inslvency Practitiners Assciatin (IPA) r Institute f Chartered Accuntants f England & Wales (ICAEW)). This meant that individual IPs did nt need t btain their wn cnsumer credit licence. Hwever, the FCA's authrisatin scheme under FSMA 2000 des nt allw fr grup licences. Firms wh had the benefit f a grup licence therefre had t ensure: they btained an authrisatin frm the FCA (r btained an interim permissin) t carry ut thse activities they culd rely n an exclusin; r they culd rely n an exemptin because f arrangements made by their regulatrs under Part XX f FSMA 2000 Exclusins FSMA 2000, Pt XX While there are a number f exclusins, we cnsider tw f the mst relevant exclusins fr prfessinal firms (which were intrduced fllwing lbbying). Exclusin fr IPs An IP, and thse wrking fr the IP 'in reasnable cntemplatin f an appintment' as an IP, are excluded frm needing authrisatin frm the FCA (but the IP will still need t cmply with any applicable rules) fr the fllwing activities: IA 1986, s 388 SI 2001/544, art 72H debt adjusting Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (N.2) Order 2013, SI 2013/1881 debt cunselling prviding credit infrmatin services It is imprtant t nte that this exclusin nly applies in circumstances where it is reasnably anticipated that there will be a subsequent inslvency appintment. The exclusin des nt cver debt arrangement schemes and ther nn-statutry debt slutins. If, after an IP has given his initial advice (given in cntemplatin f a ptential appintment), he cncludes that an appintment is nt apprpriate he must nt undertake any further wrk withut having the apprpriate authrisatin frm the FCA. If an IP is appinted, the IP (and prbably thse wrking fr the IP s lng as the steps are taken n the IP's behalf) are excluded frm requiring authrisatin frm the FCA fr: debt adjusting debt cunselling debt cllecting debt administratin and prviding credit infrmatin services

5 Page 5 Hwever, it shuld be remembered that this IP exemptin des nt extend t the regulated activities f: exercising, r having the right t exercise, the lender's rights and duties under a regulated credit agreement r exercising, r having the right t exercise, the wner's rights and duties under a regulated cnsumer hire agreement IPs cannt, therefre, enter int regulated agreements, r exercise the lender's/wner's rights and duties under any regulated agreement. Cntentius business exclusin fr slicitrs and barristers Slicitrs wh are carrying ut certain credit-related regulated activities are excluded frm the need t btain authrisatin frm the FCA (but they must cmply with any applicable rules (like the FCA's Cnsumer Credit Surcebk)). Fllwing lbbying frm the Slicitrs' Regulatin Authrity (SRA), slicitrs d nt need t btain authrisatin fr debt cllectin where they carry n that activity in the curse f prviding litigatin services (but this is unlikely t apply where there is n intentin t litigate and the firm is undertaking nnlitigius debt cllectin activities). Exemptin fr regulatrs Firms may als be able t rely n the exemptin granted t members f designated prfessinal bdies (including the SRA, ICAEW and IPA) under Part XX f FSMA The exemptin applies where a firm is carrying ut a regulated activity in circumstances where the prvisin f such advice is incidental t their main prfessinal activities. If credit-related regulated activities are a majr part f the practice f the firm (fr example, a law firm whse primary business is debt cllectin), then this ptin is unlikely t be available. FSMA 2000, Pt XX Part XXIV FSMA 2000 (inslvency) IPs and their advisrs shuld be aware that Part XXIV f FSMA 2000 nw applies t firms undertaking creditrelated regulated activities and wh have an interim, full r limited permissin frm the FCA. In summary, Part XXIV f FSMA 2000 empwers the FCA t: apply fr an administratin rder r present a winding-up petitin in relatin t a cmpany r partnership which is r has been an authrised persn, is r has been an appinted representative, r is carrying n r has carried n a regulated activity in cntraventin f the general prhibitin FSMA 2000, ss 359, 367 present a bankruptcy petitin against an individual wh appears unable t pay a regulated activity debt; r appears t have n reasnable prspect f being able t pay a regulated activity debt FSMA 2000, s 372 apply fr an rder under sectin 423 f the Inslvency Act 1986 (transactins defrauding creditrs) (see Practice Nte: Transactins defrauding creditrs--claims under sectin 423 f the Inslvency Act 1986) FSMA 2000, s 375

6 Page 6 participate in inslvency prceedings, attend creditrs meetings and receive creditrs' reprts if an authrised persn r cmpany enters int inslvency r prpses a vluntary arrangement ffice hlders are als under a duty t reprt t the FCA if they think a regulated activity is being carried n in cntraventin f the general prhibitin Significantly, the written cnsent f the FCA is nw required befre the directrs f a firm hlding an authrisatin fr credit-related regulated activities can file a ntice f intentin t appint administratrs r apply fr an administratin rder. Fllwing the merging f the interim permissin register and the Financial Services register (see The Financial Register), the cnfusin ver which register t search shuld hpefully disappear. FSMA 2000, s 362A Things t watch ut fr: hw can yu unwittingly fall ful f FSMA 2000? Cnsumer credit is a very cmplex area f law. As a result f mving respnsibility frm the OFT t the FCA, cnsumer credit law has been shehrned int FSMA 2000, and as a result this has led t a lt f unanswered questins. Just sme f these are: Regulated credit agreements It is very easy t enter int a regulated credit agreement. The definitin simply says that a regulated credit agreement is an agreement under which a lender prvides: t an individual r a relevant receipt f credit (which includes sle traders and unincrprated partnerships r tw r three partners, nt all f whm are crprates) credit f any amunt (which includes, but is presumably nt limited t, a cash lan r any ther frm f financial accmmdatin) where the agreement is nt exempt It is, therefre, arguable that if a debt is immediately due and payable, giving a debtr further time t pay (and cntractually agreeing t defer thse payments) culd create a regulated credit agreement where the debtr is an individual r 'relevant recipient f credit' (but there may be exemptins which can be relied upn). Debt cllecting by IPs One f the main functins f any IP is t realise the assets f the inslvent cmpany including cllecting any debts wed t it. After the IP is appinted as an IP, he is excluded frm the need t btain authrisatin fr 'debt cllecting' (within the particular meaning f the RAO). Hwever, cmplicated issues arise if the inslvent cmpany has entered (perhaps unwittingly) int a number f regulated credit agreements withut authrisatin. While the IP may be able t cllect the debts due under thse agreements, they may be unenfrceable under FSMA 2000 withut, fr example, the curt's permissin. If the IP threatens t d smething which it cannt, r gives a misleading impressin t the debtr, it is likely that the IP is in breach f CONC and his actins may give grunds fr the debtr t argue there is an unfair relatinship within the meaning f Sectin 140A f the CCA IPs will therefre need t ensure they act within the law and d nt assume they, r any third party, can cllect debts due t the inslvent cmpany. CCA 1974, s 140A

7 Page 7 Pursuing debts under regulated cnsumer credit agreements If there is a regulated credit agreement, there are varius pst-cntractual ntices which must be served befre further actin can be taken. The types f ntices depend n the type f agreement. Fr example, if a regulated credit agreement is a fixed-sum credit agreement fr a fixed duratin, a lender will need t send a default ntice under Sectin 87(1) f the CCA 1974 (in the prescribed frm) befre taking steps t (fr example) end the agreement early, recver pssessin f gds r land r demand earlier payment f any sum. The lender must als send a peridic ntice under Sectin 77A f the CCA 1974 at least every year. If a brrwer falls int arrears, the lender will nrmally be required t send a ntice f sums in arrears under Sectin 86B f the CCA 1974 within 14 days f the brrwers' arrears, equally tw mnthly repayments. Further ntices will need t be sent at least every six mnths while the brrwer remains in arrears. There are serius cnsequences fr nn-cmpliance with these rules. Fr example, if a peridic statement is nt sent then: CCA 1974, ss 77A, 87(1), 86B the agreement becmes unenfrceable during the perid f nn-cmpliance and the brrwer has n liability t pay interest and charges during the perid f nn-cmpliance