Even More about Consumer Credit

In some respects this whole consumer credit thing seems to be  taking up more time than the changes for the MMR. I make no apologies therefore for the following post , albeit that it is a few days after the FCA published CP13/10  - The Detailed Proposals for the FCA regime for consumer credit.

The following is in part recap , in part a few concerns and in part some pointers about what is next. So, in a word , it is a game of three halves!

Since the beginning of September firms with OFT consumer credit licences have been able to register with the FCA for  ‘interim permission’ to enable them to continue to carry out their consumer credit activities from 1 April 2014 until they are fully authorised. There is a 30% discount offered to firms that register before 30 November 2013. Mortgage brokers generally fall on the fringes of Consumer Credit activity, usually on the basis that they may occasionally made recommendations or offer advice on the repayment of consumer credit regulated loans.  

As the rules currently stand, such activity has the ability to fall under the ‘high risk’ category for firms as set out in the new Consultation Paper CP13/10 which sets out that, amongst other things, the activities of Credit Brokerage, Debt Adjusting, Debt Counselling and Credit Information Services are high risk consumer credit activities. All of these activities are the type of activity that a mortgage broker might undertake at some point in time in the course of a given year even though this might be no more that discussing a credit reference report or recommending that an existing Consumer Credit loan be rolled up into a mortgage.

There is a real risk that the new proposals could be top heavy on the smaller firms unless there is some common sense approach adopted somewhere along the line. After all there is a world of difference between pay-day loans and recommending that a mortgage client pay off their bank loan before,  or roll up their bank loan into,  their new mortgage. However, if you are tempted to think that the role of a mortgage broker in this matter is on a not-for-profit basis ( on the basis that any advice or activity relating to consumer credit loans is consequent to the main business of mortgage sales and you do not charge for the service) then think again. You actions are in the way of business and have a bearing on the income that you will ultimately glean from the mortgage transaction.

I have only just started to read the CP13/10 that sets out the rules to come into place on 1^st April next year and will provide ongoing updates on this as i progress over the next few days or so.

For now, over and above my comments and concerns above, please consider the following:-

The new rules come in on 1^st April 2014. There will be  a 6-month transitional period during which, if a firm is able to demonstrate that it has acted  in accordance with old CCA requirements and OFT guidance, the FCA will not take action against it  in relation to those corresponding new rules that are substantially the same from 1 April 2014.

The FCA have  stated that they  have tried to make the transfer as smooth as possible for the vast majority of firms, and do not expect many firms to need to make significant changes to their systems.

An important part of the regime is the distinction between higher-risk and lower-risk activities. Firms will be regulated and supervised differently depending on which category they fall into. Consumer credit will follow the same FCA firm classification model that is applied to all firms  .Firms will fall into one of the four conduct categories: C1, C2, C3 or C4. Mortgage brokers will already have been given a conduct classification, earlier this year and I suggest that that is unlikely to change as a result of new consumer credit  rules.

If you do not register for an interim permission you must stop carrying out regulated consumer credit activities after 31 March 2014. If you do not, you may be committing a criminal offence and you could face enforcement action.

If you are already authorised by the FCA or PRA you will not automatically be given an interim permission; you still need to register for an interim variation of permission if you wish to continue to carry on regulated consumer credit activities.

AND , of course, you must pay the required fee when you register, unless you are exempt ( which as mortgage brokers you will not be). 

AND, of course, your consumer credit licence must still be valid on 31 March 2014 for you to qualify for an interim permission so do not let it lapse!  If you need to correct your consumer credit activities you should do so before registering for interim permission. However, be aware that there is a processing period so that if you apply now to the OFT you may not get the amendments made before 30^th November to qualify for the discount. The longer you leave any application, the greater the risk that you may not be  authorised in time for 1^st April.