Find out the main differences between the types of business that required an OFT licence and the consumer credit activities you may need to be authorised for under our regime.
It is important to understand how the changes to consumer credit regulation may affect you. If a business carries on a regulated activity that requires authorisation under the Financial Services and Markets Act (FSMA) and is not authorised (or exempt, such as when it is an appointed representative ), it is likely to be a criminal offence.
If you lend money or collect debts without permission under FSMA to do so, even if you are authorised under FSMA for a different activity, you may also be guilty of an offence. It may also mean that agreements you make are unenforceable.
This note is only a very broad overview of the changes in the scope of regulation. It does not cover credit activities that will be regulated under our regime if they are fundamentally the same as the credit activities for which an OFT licence was required.
If you are unsure whether you will require authorisation under the new FSMA regime you should seek independent legal advice.
The Government’s overall approach has been to keep the scope of consumer credit regulation broadly the same. There are no significant differences in the types of loan agreement that are exempt from being 'regulated agreements'.
But there will be some differences in the activities that are regulated. The main changes affect the following:
There is a new regulated activity that covers the facilitation of lending and borrowing through electronic platforms (P2P platforms). This activity is called 'operating an electronic system in relation to lending'. P2P platforms bring together potential lenders and potential borrowers and make available the loan agreements to be used by the two parties.
P2P platforms that make available consumer credit agreements previously required a consumer credit licence from the OFT for debt administration. The new custom activity for P2P platforms covers their operation of the electronic platform, as well as other activities they do connected to that, including:
The previous OFT regime, under the Consumer Credit Act 1974 (CCA), had two separate activities of:
To make regulation simpler for firms and consumers, the new regime brings together credit brokerage and credit intermediation in a single regulated 'credit broking' activity for which businesses will need to be authorised.
A lender, owner or debt collector (who has the required authorisation) may outsource the activity of tracing a borrower or a hirer to another person.
Under the new regime, a firm (that is not the lender or owner) which just takes steps to trace the identity or location of a borrower or hirer under an outsourcing arrangement and takes no other steps to collect debts will be exempt from having to be authorised for debt collection. This applies provided the firm does no other activity for which it needs to be authorised.
The OFT regime excluded agents of suppliers, who canvassed certain loan agreements (for example, loans by the supplier to finance the purchase of its own goods by a consumer) during an unsolicited visit to a consumer’s home, from the credit brokerage activity, as long as the agent didn’t do anything else that counts as credit brokerage. For example, agents of mail order companies.
This exclusion is being widened to include solicited (as well as unsolicited) visits by such agents, and to include loans by a member of the same group as the supplier to finance the purchase of goods and services from the supplier.
Under the new regime, a business may be exempt from needing to be authorised if it is an appointed representative.
In broad terms, an appointed representative is a business which is not authorised, but which has a contract with a firm (called 'the principal') that allows it to carry on certain activities under the permission of the principal.
A business cannot be an appointed representative for a regulated activity if:
A person who has been appointed to act as an insolvency practitioner will be exempt from the need to be authorised to do debt adjusting, debt counselling, debt collecting, debt administration and providing credit information services.
Also, a person who carries on debt adjusting, debt counselling or providing credit information services in reasonable contemplation of appointment as an insolvency practitioner will be exempt.
An insolvency practitioner cannot, however, rely on these exemptions if it also does other regulated activities for which it needs to be authorised (except if those other activities are credit activities and it has an interim permission for them).
Many professional firms currently carried on consumer credit activities under a group licence issued by the OFT. These included, for example, law firms and accountants.
Under the new FSMA regime, professionals who are members of certain professional bodies - such as the Institutes of Chartered Accountants and the Law Societies - may be able to carry on credit activities under supervision by their professional body, rather than by the FCA, as long as the professional body has approved rules in place to regulate the carrying on of those activities by its members. If this is the case, the professional firm would not need to be authorised.
This applies, however, only if certain conditions are met, including that the consumer credit service provided by the professional firm is incidental to the professional services (i.e. non-regulated services) it provides. This is different to the group licensing regime and means that, if regulated credit activities are a major part of the practice of the firm (for example, a law firm whose primary business is debt collection), then this option is not available.
This does not apply to professional firms that need to be authorised for other regulated activities. Also, if a professional firm is currently taking advantage of this option for non-credit activity, but will need to be authorised for its credit activities because, for example, it does not meet the incidental condition for those, it will need to be authorised for all of its regulated activities.
The exception in the OFT regime for barristers, advocates and solicitors, acting on contentious legal matters, from credit broking, debt adjusting, debt counselling, debt collecting, debt administration, providing credit information services and providing credit references, has been carried across as an exclusion from these activities in the new regime.
Cycle to Work schemes allow employers to loan bicycle and bicycle safety equipment to employees free of any income tax liability.
The OFT issued a group licence to cover consumer hire agreements entered into by employers participating in the Cycle to Work schemes.
Under the new regime, Cycle to Work schemes will be exempt (for a bicycle or cyclist’s safety equipment up to the value of £1,000) so an employer will not need to be authorised for the consumer hire activity just because it runs such a scheme.
If an employer needs, however, to be authorised for a different activity, it will not be able to rely on this exemption (unless those other activities are credit activities and it has an interim permission for them).
Not-for-profit bodies continue to fall within the scope of regulation.
The following organisations previously had OFT group licences:
A not-for-profit body that on 31 March 2014 was covered by a group licence to carry on the activity of debt counselling, was granted a limited permission authorisation for debt adjusting, debt counselling and providing credit information services, to the extent that those activities were covered by its OFT group licence.
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