global insurance management

Consumer Credit and Credit Broking


Apr 27 2015

Consumer Credit and Credit Broking

Relevance:                   All firms.

Action required:           Review your income receiving process from credit broking activity

At the end of last year, the FCA introduced rule changes without consultation to tackle poor practices in the credit broking market that were causing serious consumer detriment. 

The FCA was able to do this because “…..Section 138L of the Financial Services and Markets Act 2000 (FSMA) allows us to make rules without prior consultation and those other steps if we consider that the delay involved would be prejudicial to the interests of consumers.”

The changes were made because the FCA had significant concerns about the practices of some credit brokers – particularly in the high-cost short-term credit (HCSTC) and other sub-prime credit markets – which charge upfront fees to consumers.  The crackdown is aimed at those credit brokers who appear to be duping borrowers into paying high fees for payday loans.

From January 2015 credit brokers will only be able to charge fees and take payment if they make clear who they are and get a customer confirmation acknowledging the fee.  In other words,credit brokers must make clear the fees they charge and that they are not acting as a lender - or be banned from charging customers:

 The rules in brief:

  • The rules ban credit brokers from charging fees to customers and from requesting customers’ payment details for that purpose unless they meet FCA requirements;
  • Credit brokers must make sure customers are given clear information about who they are dealing with, what fee will be payable, and when and how the fee will be payable;
  • Fee-charging brokers will need to notify the FCA, quarterly, of the websites they operate;
  • All brokers will need to include their legal name (as it appears in the FCA Register) in all advertising and all correspondence with customers;
  • Advertising must clearly state that the firm is a credit broker and not a lender; if the firm is both a credit broker and a lender, the advertising will need to make clear that they are advertising their broking services, not their lending;
  • There are additional rules on cancellation rights for distance contracts (for example, online credit broking), including rights to a refund.

 

Credit Broking is likely to be the most common activity that insurance intermediaries are involved in under the consumer credit regime, especially when introducing Consumers to firms offering premium finance facilities.  Commercial clients are not included.

In our experience, insurance intermediaries are remunerated by commission for introductions to premium finance operators and as such, they will not be expected to comply with a number of the new rules.  In particular, the quarterly notification to the FCA of their websites will not be necessary.

Recently, firms have been contacted directly by the FCA through email, reminding them that the first such notification is due next month.  The email states:

  • FCA rules require all firms that carry on credit broking where a fee or charge is or may become payable by a customer in connection with the credit broking activities to notify the FCA quarterly of their web domain names.  Currently, this should be done by email, fax, postal return or by hand, setting out the required information, within 30 business days of the end of the relevant quarter. Therefore, your first notification is due on or before 15 May 2015.

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