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Regulated businesses

Consumer credit businesses
Regulation of supplies on credit and hire of goods on credit to consumers, and regulation of related businesses including credit brokerage, debt collecting, debt counselling and credit reference agencies

Introduction

The Consumer Credit Act 1974 (as amended) (“CCA”) introduced regulation of consumer credit business and consumer hire business have been regulated and subordinate legislation. A licence issued by the Office of Fair Trading is required to carry on business.

The CCA was substantially amended by the Consumer Credit Act 2006 and regulations made in order to implement amendments required by Directive 2008/48/EC of the European Parliament and of the Council on credit agreements for consumers (OJ No L133, 22.5.2008, p66).

The CCA regime has been re-structured in the process of the regulation of consumer credit businesses being transferred from the Office of Fair Trading to the Financial Conduct Authority with effect from 1 April 2014.

Comment: in a bad example of what in our view is messy legislation, the CCA has been emasculated by legislative reforms introduced under the Financial Services Act 2013 and secondary legislation, notably the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No 2) Order 2013 ( 2013 No 1881).
The CCA was a coherent piece of legislation. Now, however, some of the basic definitions such as a consumer credit agreement and consumer hire agreement have been left in the CCA but much of that Act has been repealed. The detailed regulation, and the regime for regulationg consumer credit businesses, will as from 1 April 2014 be subject to the Financial Services and Markets Act 2000 and subordinate legislation including the Regulated Activities Order.

For further information on the new regime regulated by the FCA, see the section on Financial Services and the FCA information at:

http://www.fca.org.uk/firms/firm-types/consumer-credit

 

The following applies up to 1 April 2014

Consumer credit  business
“Consumer credit business”’ is any business so far as it relates to the provision of credit under regulated consumer credit agreements. “Consumer hire business” means any business so far as it relates to the hiring of goods under regulated consumer hire agreements.

Legaleze comment: the definition of credit is wide, so if  your business supplies on credit terms it is important to check whether you will require a consumer credit licence. There are exemptions which cover many credit facilities; see below.

The CCA does not regulate certain agreements which are specified in the CCA or in orders made under it. For example:
* a “debtor-creditor-supplier agreement” for fixed-sum credit, under which the total number of repayments of credit does not exceed four, and those payments are required to be made within a period not exceeding 12 months beginning with the date of the agreement (for example, an annual gym membership payable in quarterly instalments);
* a debtor-creditor-supplier agreement for “running-account credit” which provides for the making of payments in relation to specified periods and requires that the entire credit be repaid in one instalment (for example, charge cards or newspaper deliveries) provided in each case that the agreement is not a hire-purchase or conditional sale agreement and is not financing the purchase of land.

A “consumer credit agreement” is an agreement between an individual (“the debtor”) and another person (“the creditor”) by which the creditor provides the debtor with credit of any amount. A consumer credit agreement is a “regulated agreement” within the meaning of the CCA unless it is an exempt agreement. Most forms of lending of money, including secured loans, pledges and pawnbroking are within the definition of regulated agreement.
Agreements which are exempt include among others certain mortgages on land, small agreements worth less than £50, agreements requiring not more than four payments and certain charge card agreements under which a single payment must be made in each credit period.

Consumer hire business
“Consumer hire business” is any business so far as it relates to the hiring of goods under regulated consumer hire agreements. Consumer hire agreements are regulated unless exempt. A consumer hire agreement is an agreement made by a person with an individual (the “hirer”) for the hiring of goods to the hirer which is not a hire-purchase agreement and is capable of subsisting for more than three months.

Meaning of consumer
Although the word “consumer” is used in the title of the legislation, the detailed definitions refer to agreements with an "individual". Therefore agreements with sole traders and partners of a firm acting in the course of a business are within the CCA unless they are exempt. Subject to certain formalities, if the debtor enters into an agreement for business purposes and the total credit or hire charge exceeds £25,000, the agreement will be exempt.

Pre-contract information, advertising, content and format regulations
Detailed regulations made under the CCA impose certain requirements as to the giving of pre-contract information, advertising, quotation of interest rates and charges, content and format of agreements and enforcing and terminating agreements. Principal regulations include the Consumer Credit (Advertisements) Regulations 2010, the Consumer Credit (Agreements) Regulations 2010, the Consumer Credit (Disclosure of Information) Regulations 2010 and the Consumer Credit (Total Charge for Credit) Regulations 2010.


The CCA also regulates certain “ancillary credit businesses” which include credit brokerage, debt-adjusting, debt-counselling, debt-collecting, debt administration, credit information services and the operation of a credit reference agency.

What's new items [go to What's New page or archive for full item]:

27/03/2014: ‘Have you clicked yet?’ - 5 days to go for consumer credit interim permission
http://www.fca.org.uk/clicked

Under the new regime for consumer credit licensing, any provider of consumer credit who has an OFT licence and wants to continue carrying out consumer credit activities after 1 April 2014, must register with the FCA for interim permission by 31 March 2014.

18/02/2014: Consumer credit legislation transferred to FCA
The Financial Services and Markets Act 2000 (Consumer Credit) (Designated Activities) Order 2014 (SI 2014/334) is made under the Financial Services and Markets Act 2000, s 23(1B. With effect from 1 April 2014, the regulation of consumer credit has been transferred to the FCA in preparation for the closure of the Office of Fair Trading on 31 March 2014.

The Order specifies debt-collecting and entering into, or exercising rights under, a regulated consumer credit agreement (in each case, as specified in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 S.I. 2001/544, as amended, except where the activity relates to an agreement under which the obligation of the borrower is secured on land. The effect of that provision is that an authorised person (within the meaning of that Act) is guilty of an offence if that person caries on such a specified activity in the United Kingdom otherwise than in accordance with permission under the Act.

22/10/2013: OFT removes licences of three debt management businesses
The OFT has removed the licences of three debt management businesses. First Step Finance Limited (FSF), a large debt management company based in Stockport, can no longer trade in any business requiring a credit licence after the OFT identified serious concerns about the transparency and integrity of its practices. The OFT found that among other things, FSF's advertising, marketing and other information failed adequately to highlight the risks or costs associated with using its services.

07/03/2013: FSA consults on new regulatory regime for consumer credit
The Government has announced that it will transfer responsibility for regulating consumer credit from the Office for Fair Trading to the Financial Conduct Authority (‘FCA’) by 1 April 2014. As the FCA does not formally exist yet, the FSA has published a consultation document how it plans to introduce the new regime to regulate consumer credit.

06/03/2013: OFT acts against payday lenders
The OFT has warned the leading fifty payday lenders that they risk cancellation of their consumer credit lending licences unless they demonstrate within twelve weeks that they are fully compliant with required standards. The OFT published revised Debt Collection Guidance in November 2012, focusing on continuous payment authority (CPA). The guidance makes clear that the OFT expects lenders' use of CPA to be reasonable and proportionate, and to have regard to a borrower's financial position.
The OFT stated that particular areas of non-compliance included:
* failing to conduct adequate assessments of affordability before lending or before rolling over loans;
* failing to explain adequately how payments will be collected;
* using aggressive debt collection practices and not treating borrowers in financial difficulty with forbearance.

28/12/2012: Financial Services Bill receives Royal Assent
The Financial Services Bill received Royal Assent on 19 December 2012. The Financial Services Act comes into force from 1 April 2013 and brings in major reforms including the transfer of consumer credit regulation from the Office of Fair Trading to the FCA , which will deliver a comprehensive improvement in consumer protection when compared to the OFT’s current suite of powers. The FCA will take on responsibility for consumer credit regulation from 1 April 2014.

Further information
For further information about the licensing regime applications for a licence, visit the Office of Fair Trading.

[Page updated: 27/03/2014]



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Introduction