Credit Brokerage Even if you do not offer credit yourself, you may want to introduce your customers to a third party to enable your customers to access funds to purchase your goods and services or hire your goods. If you choose to do this, you may be deemed to be a credit broker. If you are a credit broker, there is important information you need to know about your obligations, including the fees you may charge your customers. This guidance seeks to explain those rules contained within the Consumer Credit Act 1974 (as updated by the Consumer Credit Act 2006 and associated regulations) including details of specific charges you can make and when they are applicable. To act as a credit broker, you must have a consumer credit licence for your business. In the guide Credit licensing: OFT to FCA What is a credit broker? When do the rules apply? Charging for your services What is a credit intermediary? Conduct of credit brokers and credit intermediaries Do you advertise credit? Credit licensing: OFT to FCA On 1 April 2014 responsibility for credit licensing passed from the OFT to the Financial Conduct Authority (FCA). Credit licences in force prior to April 2014 were transferred, on application, to the FCA on an interim permission to allow the business to continue using their licence after April 2014. Full FCA licensing will eventually be required as the interim regime ends on 1 April 2016. Please see the Consumer credit pages of the Financial Conduct Authority website for more information (http://www.fca.org.uk/about/what/championing/consumer-credit). If you registered for interim permission to offer consumer credit from 1 April 2014, you need to apply for full authorisation in your allocated application period. Ft20 08/14 1
What is a credit broker? A credit broker introduces individuals - your customers who are seeking credit or goods on hire - to businesses that may provide this credit, or other credit brokers. An introduction may include forwarding an application to a creditor, but does not depend on it. A recommendation to deal with a particular creditor or broker could amount to credit brokerage. For example, you may be a retailer who asks a finance company to finance a purchase made by one of your customers, or you may recommend a particular finance company to your customers. Credit brokerage also includes introducing individuals to other credit brokers. To act as a credit broker, you must have a consumer credit licence for your business (full information on authorisation is available on the FCA website http://www.fca.org.uk/firms/firm-types/consumercredit/authorisation). If you do not have a consumer credit licence and introduce your customer to credit facilities you could be subject to enforcement action and financial penalties. If your business encompasses first charge mortgages, or certain types of insurance, you may need to gain permission or an exemption from the FCA. Check for details on the Do I need to be authorised? page of its website (http://www.fca.org.uk/firms/about-authorisation/do-i-need-tobe-authorised). Credit brokers introducing clients to lenders who are regulated by the FCA do not have to comply with these rules or obtain a consumer credit licence. However, many credit brokers will deal with a range of lenders - including some providing second mortgages only - who will not fall within the FCA regime. Brokers will, therefore, have to check whether they have made an introduction to a Financial Conduct Authorityauthorised lender or not before deciding whether they must comply with the rules. When do the rules apply? The legislation controls introductions to virtually all sources of credit or hire. It also applies to certain mortgages (of any amount) for the acquisition or provision of a dwelling for occupation by the prospective debtor or a relative of hers. 2
The controls apply to agreements between traders and individuals, sole traders, partnerships and unincorporated associations, but not agreements made between traders and corporate bodies such as limited companies or limited liability partnerships. Charging for your services You can charge your customers an upfront fee for your services as a credit broker. However, if the customer does not enter into an agreement for the credit or hire within six months of your introduction you cannot retain more than 5 of this fee (it does not matter why the customer does not go ahead with the agreement, even if it is just a change of mind.) The customer is entitled to ask for a refund of the excess if he has already paid more than 5, and can take legal action to recover this if you refuse. In addition failure to refund fees may put you at risk of losing your consumer credit licence or action being taken against you under the Enterprise Act 2002 - either by way of a voluntary undertaking or undertaking to court - in order to ensure compliance. You may also be deemed to be in breach of the Consumer Protection from Unfair Trading Regulations 2008. You must not give your customers any indication that your fees are nonreturnable, including putting any clauses in your contract to this effect. The customer has a statutory right to pay no more than 5 in credit brokerage fees if she does not enter into a credit agreement. You cannot restrict this right. If it is apparent that there is no prospect that a credit agreement will result from your introduction you should refund the customer's money as soon as is reasonably practicable. You should not withhold this money for the full six months in these circumstances. If you attempt to evade this legislation, the FCA may view it as an unfair business practice and review your fitness to hold a consumer credit licence. The removal of your credit licence would leave you unable to make any further introductions on behalf of your customers. The law currently applies equally to your dealings with business customers (other than commercial mortgages, as mentioned above), unless they are limited companies or limited liability partnerships. 3
What is a credit intermediary? A credit intermediary is a person or business who is not acting as a creditor and who, in the course of his business receives a fee for presenting or offering credit agreements to consumers or assists customers in completing their paperwork in respect of credit agreements. A consumer credit licence is not required in order to be a credit intermediary. You will not be a credit intermediary if you do no more than provide information or access to information about possible credit agreements to potential consumers. There are specific rules relating to information to be given to customers by credit intermediaries, particularly in respect of openness and transparency about fees. In practice, many credit brokers are likely to be credit intermediaries and vice versa, so anyone engaging in credit brokerage or carrying out the activities of a credit intermediary should have regard to the guidance found on the FCA website (http://www.fca.org.uk/firms/firmtypes/consumer-credit/authorisation/prepare). Conduct of credit brokers and credit intermediaries Information on the standards of conduct required by credit brokers and credit intermediaries can be found in the Consumer Credit sourcebook (CONC) on the FCA site (http://fshandbook.info/fs/html/fca/conc). The guidance emphasises the need for credit brokers and credit intermediaries to be transparent in all their dealings with borrowers and sets out that they should clearly disclose at the outset the full nature and extent of the services they offer to the borrower, including any charges, and the nature and extent of any relevant associations with creditors or other third parties. Failure to do so could also potentially constitute an offence for the purposes of the Consumer Protection from Unfair Trading Regulations 2008 in terms of potentially being a misleading omission. Do you advertise credit? Adverts offering credit or hire facilities to consumers are controlled by the Consumer Credit (Advertisements) Regulations 2010. Further information about credit advertising can be found in the CONC (http://fshandbook.info/fs/html/fca/conc/3). If you quote brokerage 4
fees in an advert, specific additional information must be given. The rules are quite complex and you should seek advice and/or check the legislation and guidance. The Regulations do not apply to an advertisement for a regulated mortgage contract within the meaning of the Financial Services and Markets Act 2000. You should also be aware of the Business Protection from Misleading Marketing Regulations 2008, which make further provisions that must be taken into account. Relevant legislation Consumer Credit Act 1974 (http://www.legislation.gov.uk/ukpga/1974/39/contents) Financial Services and Markets Act 2000 (http://www.legislation.gov.uk/ukpga/2000/8/contents) Enterprise Act 2002 (http://www.legislation.gov.uk/ukpga/2002/40/contents) Consumer Credit (Advertisements) Regulations 2004 (http://www.legislation.gov.uk/uksi/2004/1484/contents/made) Consumer Credit Act 2006 (http://www.legislation.gov.uk/ukpga/2006/14/contents) Business Protection from Misleading Marketing Regulations 2008 (http://www.legislation.gov.uk/uksi/2008/1276/contents/made) Consumer Protection from Unfair Trading Regulations 2008 (http://www.legislation.gov.uk/uksi/2008/1277/contents/made) Consumer Credit (Advertisements) Regulations 2010 (http://www.legislation.gov.uk/uksi/2010/1970/contents/made) Where can I get further help? This leaflet is not an authoritative document on the law and is only intended for guidance. Any legislation referred to, while still current, may have been amended from the form in which it was originally enacted. For further details or clarification contact Derbyshire Trading Standards at: Chatsworth Hall Chesterfield Road Matlock Derbyshire DE4 3FW Telephone: Businesses: Call Derbyshire 01629 533190 Consumers: Citizens Advice consumer helpline 03454 040506 5
Fax: 01629 536197 Website: www.derbyshire.gov.uk/tradingstandards We want everyone to be able to understand us. On request, we will arrange: Language interpreters, including for sign language Translation of written materials into other languages Materials in large print, on tape or in Braille. Trading Standards Institute To ensure that you are looking at the most up-to-date version of this leaflet, please visit our website at http://www.derbyshire.gov.uk/images/ft20_tcm44-8199.pdf or telephone us on 01629 536166. 6