Consumer Credit

From 1 April 2014 responsibility for the regulation of consumer credit work passed from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA). Before April 2014, the Society held a group licence issued by the OFT which licensed all Society practising certificate holders to carry out (as part of their practice) certain consumer credit activities, namely:

A Consumer Credit

C Credit Brokerage

D Debt-Adjusting

E Debt-Counselling

F Debt Collecting

G Debt Administration

H 1 Provision of credit information services (including credit repair)

That group licence ceased with effect from 1 April 2014. 

The Society’s incidental financial business (IFB) regime changed on 1 April 2014 and from that date extends to cover incidental consumer credit activities. Such consumer credit activities are:

  • credit broking,
  • operating an electronic system in relation to lending,
  • activities in relation to debt, regulated credit agreements ,
  • regulated consumer hire agreements and
  • specified activities in relation to information.

If your firm holds a current IFB licence from the Society your firm will be able to conduct all these consumer credit activities on an incidental basisonly under that licence from 1 April 2014 and no action requires to be taken if such work is incidental to your firm's other professional business and your firm complies with the Society’s practice rules on IFB (see Rule C2).  These rules were amended with effect from 1 April 2014 to reflect the extension of the IFB regime and include an obligation to comply with any relevant FCA conduct of business rules when carrying out any consumer credit activity (see Rule C2.20.7).

Where 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 the ‘incidental test’ will not be met, the IFB regime cannot licence such activities and direct authorisation from the FCA will be required.  A firm which is directly authorised by the FCA in respect of any regulated activity in terms of the Financial Services and Markets Act 2000 (FSMA) (whether relating to consumer credit or otherwise) cannot be licensed for any activity under the Society’s IFB regime. Any IFB licence held by a firm which becomes authorised by the FCA (for any regulated activities) will lapse automatically on such authorisation (see Rule C2.8.2).  This results from the requirements of the legislation.

Therefore, a firm which needs direct authorisation from the FCA to carry out the consumer credit activities it wishes to supply, cannot then use the Society’s IFB regime in respect of any other regulated activity and will require FCA authorisation for all such activities.  Conversely, a firm which is already authorised by the FCA in respect of regulated activities which do not include consumer credit activities cannot use the Society’s IFB regime to license its consumer credit activities, whether they would meet an ‘incidental test’ or not, and will require direct FCA authorisation for those activities also.

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.

Firms must therefore have assessed whether they meet the criteria set out in Part XX of FSMA and can therefore properly use the Society’s IFB regime to license all of the regulated activities they carry on. Where the criteria are not met, firms should have applied to the FCA for interim permission, or ceased to carry on consumer credit activities.

Firms now carrying on consumer credit activities without interim permission from the FCA or falling within the Part XX exemption will be in breach of FCA regulations.

The transfer of regulation from the OFT to the FCA continues to raise complex issues and the Society is in ongoing discussions with the FCA in relation to further changes which may be required to the Society’s IFB regime and related practice rules.  Further guidance will be made available as more information is obtained and discussions advance.