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Consumer credit – are you ready?

At a glance

  • On 1 October 2015, the window opens for brokers whose primary business is general insurance to seek Financial Conduct Authority (FCA) authorisation to carry on credit broking
  • Brokers may not realise that normal broking activity they undertake could potentially go beyond credit broking
  • The FCA is a tougher regulator than its predecessor, the Office of Fair Trading (OFT), so understanding where the boundaries lie is crucial for brokers and their customers

The FCA has been flexing its muscles since it took over responsibility for regulating consumer credit from the OFT in April last year.

One of its first actions was to make the payday loan company Wonga pay more than £2.6 million in compensation to around 45,000 customers for ‘unfair and misleading debt-collection practices’. And more recently payday lender Cash Genie has been ordered to provide £20 million to compensate over 92,000 customers.

In October, the window for Variation of Permissions for consumer credit opens for most brokers whose primary business is general insurance and who require credit broking permissions. It’s essential that brokers apply for the right permissions for the activities they undertake and are permitted to undertake by lenders. Brokers also need to make sure they don’t unintentionally stray into higher risk activities for example, debt counselling, collecting, adjusting and administration.

Walking a fine line

UKGI, one of the UK’s leading compliance consultancies, that helps organisations comply with the FCA regulations, says there is a fine line between traditional credit broking and activity that could be classed as a form of debt management, which would require additional permissions from the FCA.

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For example, if a broker informs a customer that they have missed a payment and takes steps to collect the payment, the broker could be perceived to be performing the separate, regulated activity of debt collecting.

Equally, if the broker was to advise a customer on how they might repay the lender, for example through staggered payments that might be classed as debt counselling. Both activities would require additional permissions from the FCA.

Nikki Bennett, UKGI Managing Director, says: “Brokers could easily stray into areas that could be classed as debt advice, simply through their desire to provide a professional service to their customers.”

With the FCA now on board, the risk of carrying out an activity for which a broker does not have the relevant permission could be even greater. The FCA has the power to issue fines or withdraw authorisation altogether.

Nikki says: “The OFT was a very light-touch regulator – you just applied for your licence and your involvement with it ended there. The FCA is far more intrusive, which is a good thing, because it means it is proactive in sorting out problems.

“However, it also means it sets higher standards, and it fully intends to enforce its rules and requirements, meaning there will be consequences for not complying.”

Consumer Credit

For more information please speak to your local Zurich contact.

Image © Getty

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