September 2013

Regulation under the Consumer Credit Act: current

changes and possible implications for members
Summary
Consumer credit regulation will move on 1 April 2014 from the Office of Fair Trading (OFT) to the Financial Conduct
Authority (FCA). The FCA will take over both the standards and enforcement of the Consumer Credit Act and related
instruments.
• Some CII/PFS members may already be caught by the consumer credit regulation. If they give advice to the
public, sole traders or small partnerships on anything to do with unsecured credit (applying for it,
consolidating it, reducing it, or checking credit status); then they may need a consumer credit licence issued by
the OFT. 1

• HM Treasury and FCA have started consulting on the transition. Regulation will be similar in some respects and
tougher in others.

• There will be an interim permission regime starting in April 2014 and members who currently hold a consumer
credit licence will need to apply for this well in advance, or risk carrying on activities unlicensed.

• To encourage prompt take-up of this interim permission, the FCA have opened up an on-line application
system, and are offering a 30% fee discounts to successful applications made prior to 30 Nov 2013.

• The OFT offers a group licensing regime, but the FCA will be scrapping this. However professionals that are not
authorised by the FCA for some other activity (eg financial advice) will be able to get an exemption.

Timings: following a high level consultation that closed in May, the FCA will be publishing a consultation on more
detailed rules this Autumn. This will close in the winter, and final rules will be drafted around March 2014.

1. Overview and background

The Consumer Credit Act (CCA) 1974 covers all activity related to lending and borrowing including credit and hire
agreements except first-charge residential mortgages. It is a piece of primary legislation which has been amended
several times in the last few years (notably 2006).

Further to the Government’s regulatory reforms to bring all retail financial services conduct regulation under a single
body, regulating consumer credit will move on 1 April 2014 from the OFT to the Financial Conduct Authority (FCA). The
FCA will take over both the standards and enforcement of the CCA and related instruments.

1NOTE: This policy briefing is for general information purposes only and should not be used by members to assess their own compliance with any
regulatory requirements. The CII shall not be liable for any reliance that members place in this briefing. Members wishing to obtain information
and/or advice on their own situation should refer directly to the OFT, FCA or obtain legal assistance.

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 Policy Briefing: Consumer Credit regulation and CII members, September 2013

2. Existing consumer credit regulation and members

Some CII or PFS members are currently caught by the CCA regulation and have to hold a Consumer Credit Licence
(CCL): 2

• The Act covers more than just retail consumers: the title Consumer Credit Act is a bit of a misnomer, because in
addition to retail consumers, the CCA also covers sole traders and small partnerships. Only limited companies and
PLCs are out of the scope.

• Licence holding is not just for selling credit: there are currently nine CCL categories or permissions covering licensable
credit activities, only one of which covers lending money. The others cover brokerage, debt adjusting, debt
counselling, debt administration, and credit information services.

Overall situation
If a firm gives advice to the public, sole traders or small partnerships (or acts on their behalf), on anything to do with
unsecured credit (applying for it, consolidating it, reducing it, or checking credit status); then the firm may need a
consumer credit licence. Firms not having one could be liable for criminal prosecution. 3

Financial advisers
This group is likely to need several categories of CCL if they provide any advice or services related to unsecured debt,
and most should already be aware of this. 4 The following applies:

• Advice on managing debt: if the advice covers steps to manage debt under £25,000, then the adviser must hold the
licence category E: Debt Counselling.

• Introductions to firms that offer credit: if they direct clients to other firms that offer credit products valued under
£25,000, then the adviser must hold category C: Credit Brokerage.

• Negotiations on consolidating debt: if the adviser negotiates on behalf of clients, including challenging existing credit
agreements or introducing clients to firms that take debt discharge obligations, then the adviser must hold licence
category D: Debt Adjusting.

• Checking credit ratings or obtaining credit status: if the adviser checks a consumers’ credit rating, or obtains a credit
history report from a consumer credit reference agency on their clients' behalf, then category H Credit Information
Services would be needed.

Financial advisers: new issue of adviser charging

It is possible that financial advisers allowing their client to defer or spread the Adviser Charge could also be caught by
the CCA as lending money, unless the transaction meets certain exemptions set out by the OFT. 5

The situation arises when Adviser Charge is spread over time, in which case it could be construed as lending requiring
CCL category A: consumer credit. There may be exemptions, and the OFT have published guidance. 6 For this licence
category to not be required, the remuneration must be:

2 The information in this section has been gathered from a variety of sources including: various sections of the OFT website on consumer credit
licensing, www.oft.gov.uk/OFTwork/credit-licensing/#.UgizDVITOMo (accessed 7 Aug 2013); the Consumer Credit Act 1974 and its amendments
(2004, 2006); the National Business Register website, “Do you need a Consumer Credit Licence?” www.start.biz/nationwide/credit.php (accessed 7
Aug 2013).
3Please note that this is for general information purposes only and should not be used by members to assess their own compliance with any
regulatory requirements. Members not completely sure of their own specific situation should refer directly to the OFT, FCA or obtain legal assistance.
4 See for example, CII unit CF1: Financial services, regulation and ethics, Study Text (updated July 2012), pp.12.13-12.14.
5 See for example, “APFA: Do you need a Consumer Credit Licence?” by Linda Smith, MoneyMarketing, 8 Nov 2012.

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 Policy Briefing: Consumer Credit regulation and CII members, September 2013

• without interest or other charges; and

• payable in 4 instalments or less; and

• payable within a 12 month period.

Although many advisory firms will already hold a CCL, they are unlikely to have this category. If in doubt, advisers may
wish to apply to have their licence varied to add the new category.

Mortgage advisers or brokers

Transacting and/or advising on loans secured on residential property are not caught by the CCA. However, as with
other financial advisers, a CCL may be needed if any advice or transaction includes anything to do with unsecured
debt under £25,000 (eg credit cards, personal loans, or current account overdraft facilities). 7

General insurance brokers

General insurance brokers that deal with companies or PLCs are not caught by the Consumer Credit Act, regardless of
what sort of advice they give or services they carry out. However; if their clients are consumers, sole traders or small
partnerships, they will need a CCL if they perform certain activities with them. For example:

• Debt counselling: if the broking involves advising clients on steps to manage debt of under £25,000 as part of their
general finance arrangements, then they will need category E: Debt Counselling.

• Introductions to firms that offer credit: if they direct clients to other firms that offer credit products valued under
£25,000, then the adviser must hold category C: Credit Brokerage.

• Debt adjusting: if the adviser negotiates on behalf of clients, including challenging existing credit agreements or
introducing clients to firms that take debt discharge obligations.

3. Moving regulation from OFT to FCA

With effect from 1 April 2014, firms involved in consumer credit business will be regulated by the FCA. However this
will be more than simply an administrative move from one regulator to another. The FCA began consulting in March
2013 on how this will work, 8 and have also recently published further information on its website. 9

Overall, the FCA will apply five elements of its regulatory model to consumer credit, resulting in regulation that is
stricter in some respects:

• Conduct requirements and rules: general matters of governance and integrity will fall under FCA high-level rules such
as Principles for Businesses – which form the basis for many FCA enforcement actions.

6 OFT guidance document: “Consumer Credit: Regulated and Exempt Agreements,” Nov 2010, pp.9-10.
7Source: various sections of the OFT website on consumer credit licensing www.oft.gov.uk/OFTwork/credit-licensing/#.UgizDVITOMo (accessed 7
Aug 2013); the Consumer Credit Act 1974 and its amendments (2004, 2006).
8Financial Services Authority consultation “CP13/7: High-level proposals for an FCA regime for consumer credit,” March 2013. Note that while this
was published by the former FSA, it concerns the policies and activities of its successor the FCA. http://www.fca.org.uk/news/consultation-
papers/fsa-cp13-07-consumer-credit-regulation. See also HM Treasury consultation, A new approach to financial regulation: transferring consumer
credit regulation to the Financial Conduct Authority, Mar 2013
www.gov.uk/government/uploads/system/uploads/attachment_data/file/221913/consult_transferring_consumer_credit_regulation_to_fca.pdf
9FCA website, “Consumer credit: the differences between the scope of the Office of Fair Trading (OFT) and the FCA regimes,”
www.fca.org.uk/firms/firm-types/consumer-credit/scope (accessed 22 Aug 2013).

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 Policy Briefing: Consumer Credit regulation and CII members, September 2013

• Authorisation: the process for obtaining authorisation will be more rigorous, evolving into something more similar
to the way the FCA authorises firms for other types of activities. There will be an interim authorisation process for
the first two years of the regulation, and then two tiers based on level of risk and amount of activity.

• Scope of regulation: this is one area where the Government plans to “keep the scope of consumer regulation broadly
the same under the FSMA regime, including replicating existing provisions under the CCA.”

• Supervision: generally, the FCA will have greater powers to investigate and sanction, and an approach that is more
preventative and proactive than the OFT. There will be an Approved Persons regime with Controlled Functions, as
with other areas the FCA regulates.

• Enforcement & redress: this will be significantly greater than under the OFT, including powers to ban individuals,
publicly censure firms’ activities, seek injunctions and freezing orders, carry out investigations involving search
warrants, impose consumer redress, and ultimately to bring disciplinary, civil and even criminal proceedings.

4. FCA consumer credit authorisation: two tiers

The FCA consumer credit authorisation will have a full regime involving a core and a limited permission tiers; and a
two-year interim permission system for firms who already have an OFT consumer credit licence.

Full regime
The full regime will be established on 1 April 2014, and will be divided into two tiers depending on risk and extent of
permission. This comprises the core regime covering: 10

• Consumer credit lending: including personal loans, credit card lending, overdrafts, pawnbroking, hire purchase,
conditional sales etc. But excluding lending by sellers of goods and non-financial services where there is no
interest or charges.

• Credit broking: Including introducing consumers to lenders. But excluding broking by sellers of goods and non-
financial services as a secondary activity (unless the broking is carried on in a consumer’s home on more than an
occasional basis e.g. double-glazing sellers selling credit to the consumer in their home).

• Debt adjusting: helping people with their debt problems by taking over their debts or negotiating on their behalf.
But excluding not for-profit debt adjusting.

• Debt counselling: including advising people on discharging specific debts. But excluding where carried out by a not-
for-profit body.

• Debt administration and collection: carrying out activities relating to consumer credit on behalf of a lender.

• Credit information services: obtaining information about someone’s credit record or helping them change their credit
record. But excluding not-for-profit credit information services.

• Credit reference agency: collecting information about consumers’ financial standing to inform the decisions of
consumer credit firms.

• Operating an electronic system in relation to lending: the new regulated activity proposed by the Government
concerning peer-to-peer platforms.

The second “limited permission” tier will cover activities deemed to be lower risk, and is clearly aimed at non-
financial services firms that are caught by the consumer credit requirements:

• debt counselling with debt adjusting and/or credit information services, when carried out by a not-for-profit-body;

10 FSA CP13/7, March 2013, see Note 8 above.

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 Policy Briefing: Consumer Credit regulation and CII members, September 2013

• secondary credit brokerage by sellers of goods and non-financial services (except firms that routinely carry out the
sale in the customers’ home);

• sellers of goods and services who only provide credit or other financial accommodation directly to purchasers
(excluding hire purchase or conditional sale) with no interest or charges; and

• debt counselling, debt-adjusting or credit information services, when carried on as ancillary activities by a person
already in the lower risk category.

It is unclear whether financial advisers, mortgage advisers or general insurance brokers would fall into the second
lower-risk tier. However a reading of the parameters here suggests that because these practitioners’ main business is
within financial services, they would be subject to the full authorisation tier. 11

Further information on how the FCA will approach regulating consumer credit, including the appointed
representatives and approved persons regimes, is available on its website. 12

Licence fees for full licensing: the FCA announced in a Policy Statement published on 30 August that it will be
introducing a programme of rebates “to ensure that the cost of the transfer of regulation is appropriate”. 13 The
regulator will consult in October 2013 on how these rebates would work.

Interim permission for existing CCL-holders

The FCA has established an interim permission regime for firms that already possess a CCL on 31 March 2014. 14 The
regulator has written to CCL-holder firms, warning them that interim permissions will not be automatic: 15

• Firms that have a valid OFT licence: will have to apply for interim authorisation from the FCA. Failing to do this will
result in the firm operating without a licence when the OFT one expires on 31 March 2014. This is a criminal offence
for which the firm will be liable for prosecution.

• Discounted fee for firms applying before November: applications are open now, and those completed before 30
November will be charged a discounted fee of £105 for sole traders (£245 for other firms). After 30 November, the
regular fees will apply: £150 for sole traders (£350 for other firms). 16

• Firms can use the FCA’s on-line interim permission system: to encourage firms to exploit the discounted interim fees,
the FCA have set up an on-line application process. 17 The page also offers a step-by-step guide, frequently-asked
questions and other material on consumer credit authorisation.

• Firms that that do not already have a CCL: will have to obtain a CCL by 31 March 2014, or apply for full FCA
authorisation when that opens.

More information on the interim permission system can be found in the FSA consultation Chapter 3. It includes
information on the limitations to interim permissions:

11 “Do you need a consumer credit licence? Don’t ask the FCA or OFT,” by Donia O’Loughlin, Financial Adviser, 24 July 2013.
12 www.fca.org.uk/firms/firm-types/consumer-credit/scope
13FCA Policy Statement 13/7 FCA regime for consumer credit: interim permission fees, 30 Aug 2013, p.7. www.fca.org.uk/your-fca/documents/policy-
statements/ps13-07
14 See FSA CP13/7, March 2013, see Note 8 above, Chapter 3, pp.22-29.
15Joint letter from FCA and OFT to consumer credit licensees, “Consumer credit regulation is changing: you need to act now,” 15 July 2013. Forwarded
to CII Customer Service from a member. See also www.fca.org.uk/firms/firm-types/consumer-credit (accessed 3 Sep 2013).
16 FCA Policy Statement 13/7 ( see note 12 above), p.7.
17 www.fca.org.uk/firms/firm-types/consumer-credit/consumer-credit-interim (accessed 3 Sep 2013).

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 Policy Briefing: Consumer Credit regulation and CII members, September 2013

• such firms can only approve financial promotions related to the activity for which the permission applies;

• firms with interim permission will not be able to appoint Appointed Representatives (‘ARs’).

• the interim regime will not last beyond 1 April 2016 at the latest, and the FCA has said that it intends to begin
directing firms to apply for full authorisation from 1 October 2014, with different deadlines for different categories
of firm.

5. Group licences and professional bodies

There exists a group licence regime under the OFT for charitable organisations and professional bodies. The Treasury
and the FCA have taken a view on how this would operate under the FCA regulation.

Existing OFT group licensing

The OFT Group Licence system allows certain professional bodies that are able to assess members’ consumer credit
compliance are able to hold a group licence on their members’ behalf. 18 The CII has never applied for such a Group
Licence on behalf of its membership, for the following reasons: 19

OFT criteria CII situation

1. The not-for-profit status and main business activities of Notwithstanding the CII’s own not-for-profit and public
the members in question are assessed and taken into interest professional body status:
account by the OFT using a risk-based approach. • its members are for-profit; and
• their main business activities are in financial services.
Therefore, the OFT would apply the strictest possible
assessment.

2. The body must have appropriate systems and controls in The CII does not possess sufficient resources or legal powers
place for ensuring that group members meet the OFT’s overall to assess the fitness of its members to conduct CCA activities.
“Fitness Test” on an initial and ongoing basis. 20 Instead the FCA carries out this function.
• This is to carry out activities for each licence category • This activity would involve initial assessment and ongoing
being applied for. monitoring of over 21,500 financial adviser members in
• For a financial adviser group membership, the CII would meeting the requirements for 4-5 consumer credit licence
have to apply for a group licence covering the 4-5 categories.
categories described in section 2 above.

3. Suitable procedures must be in place within the body to For members demonstrating unfitness to conduct consumer
allow the exclusion from cover of unfit members. credit activities, the CII does not possess legal powers to stop
them from practising. Only the FCA has this function.
• While the CII possesses a disciplinary regime to enforce its
Code of Ethics, CPD and other aspects of membership, the
sanction does not prevent individual members from
continuing to practise.
• It lacks the legal powers and/or resources to prevent an
individual from practising, or to bring legal proceedings for
noncompliance.

18 Consumer Credit Act 1974 (amended 2006), section 22(5).

19 See OFT guidance, “Group licensing regime: Guidance for consumer credit licence holders and applicants,” April 2008 (updated August 2011).
20See Consumer Credit Act 1974, section 25A; and OFT, “Consumer credit licensing: general guidance for licensees and applicants on fitness and
requirements,” Jan 2008 www.oft.gov.uk/shared_oft/business_leaflets/credit_licences/oft969.pdf

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 Policy Briefing: Consumer Credit regulation and CII members, September 2013

Group licensing under the FCA

The Treasury and FCA assessed the group licensing scheme in their consultations on the regulatory transition and
have concluded that: 21

• The group licensing scheme will be abolished: not-for-profit and non-financial services firms will have to seek
authorisation under the low-risk limited permission tier described above.

• Professional bodies seeking group authorisation: will have to use the FCA’s Part 20 exemption for professions that are
not otherwise regulated by the FCA. This allows members of certain professional bodies who are already overseen
by their own professional body (eg the Institute of Chartered Accountants of England & Wales).

The Government has also made clear that, to qualify for the latter Part 20 exemption, there will be two additional
provisions for professional firms carrying out consumer credit activities:

• Incidental to business: the consumer credit activity must be incidental to the firm’s professional business. If credit
activities are in any way linked to the firm’s normal business (for example, arguably, giving holistic financial
advice), then the firm will need to be fully authorised by the FCA.

• Cannot be FCA authorised for some other activity: the Part 20 regime is only available to firms who are not already
authorised by the FCA. As the FCA explains, “The carrying on of a regulated activity by a firm cannot be exempt
under FSMA Part 20 if the firm is required to be authorised for other regulated activities.” 22 So if a firm is
authorised under FSMA to conduct financial advice, it cannot be exempt from FSMA to give debt advice.

It is therefore unlikely that the CII would be successful in applying for a FSMA Part 20 exemption for financial
advisers, mortgage advisers or general insurance brokers; because those members are already authorised under
FSMA to conduct those activities.

6. Next Steps

Sept 2013 – 31 Mar 2014 From September, firms can register for ‘interim permission’.

End-September 2013 Second consumer credit Consultation Paper, covering all remaining aspects of the regime, including
the conduct rules and rebates.

October 2013 onwards The FCA runs free workshops around the country to explain the new changes

Autumn/winter 2013 Consultation on plain language guidance to help firms and other stakeholders understand and
navigate the new regime.

March 2014 Feedback on responses to the second consumer credit Consultation Paper, including made rules.

March 2014 Final version of plain language guidance for firms and other stakeholders.

March 2014 Fees proposals for 2014/15

31 March 2014 All OFT-issued consumer credit licences expire

1 April 2014 FCA takes over regulation of consumer credit

Laurence Baxter
CII Group Policy & Public Affairs
September 2013

21 HM Treasury consultation (see note 8 above), p.26, para.3.19.

22 FSA CP13/7 (see note 8 above), p.46, para.5.26.

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