Case Study

Consumer Credit - Do you need a licence?

Monday 30th June 2008

The Consumer Credit 1974 act provides that anybody who wishes to carry out any work relating to consumer credit must be licensed. The act originally placed financial limits which allowed you to carry out certain activities without a licence provided the financial element of the activity did not exceed the financial limits in place. The Consumer Credit 2006 Act has removed these financial limits and accordingly anybody carrying out consumer credit work now requires a licence. You should be aware therefore that many of your activities such as Homestake, Shared Ownership, Debt Collecting, and Debt Counselling etc which you have up until now carried out without a licence may now be illegal if you do not have a licence. This e-briefing aims to cover the following:

  • Do you need a licence?
  • How do you apply for a licence?
  • What are the different categories of licence?

 


Do you need a licence?

You are likely to need a consumer credit licence if you:

  • sell goods on credit
  • hire or lease out goods for more than three months
  • lend money
  • arrange credit for others
  • offer hire purchase terms
  • collect debts
  • help people with debt problems
  • advise on people's credit standing.

 

From October 2008 you will also need a licence if you:

  • administer agreements (but do not collect debts) on behalf of creditors or
  • assignees
  • help individuals to locate (and possibly also correct) records about their financial standing held by credit information agencies

 

Even if you make no charge for services or are non-profit-making, you may still need a licence. You will also need a licence even if the credit activity forms only a small part of your overall business.

 

It is contrary to the legislation to carry out any activity that requires a consumer credit licence before a licence has been issued to you. Even if you have a licence, it is contrary to the legislation to carry out any licensable activities that are not covered by that licence. In addition, if any of your customers were to default on a payment, you would not be able to enforce a credit agreement that you had made whilst unlicensed, or where an unlicensed credit broker was involved. An agreement for the services of a credit broker, debt collector, debt adjuster, debt counsellor, debt administrator, credit reference agency or provider of credit information services cannot be enforced if the agreement was entered into when the business was unlicensed. 


How do you apply for a Licence?

An application is made to the Office of Fair Trading ("OFT").  The application form can either be completed online or by completed and sent by post.  There will be different requirements when applying depending on what category you are applying for.


What are the different categories for a licence?

When completing the application you will be expected to provide information about the employees and other members of the organisation to establish whether the organisation is "fit" to have a licence. The OFT will then look at the activity you require the licence for and establish what category it falls under. Your licence must be for valid for each category your activities fall under. It is not enough to have one category on your licence if your activities come under a different category.

 

The categories are as follows:

  • Category A: Consumer credit business
If, as part of your business, you lend money, offer credit or give people time to pay for goods and services, you are likely to need to apply for Category A. Consumer credit business covers a wide range of transactions.

 

  • Category B: Consumer hire business
If you want to hire out, lease or rent out goods under transactions that are capable of lasting for more than three months you are likely to need to apply for Category B. Hire purchase agreements do not fall within this category.

 

  • Category C: Credit brokerage
Even if you do not offer credit yourself, you may want to introduce your customers to someone who will. If so, you are likely to need to apply for Category C. Credit brokerage which consists of introducing individuals seeking credit or goods on hire to businesses that provide credit, or other credit brokers.

 

  • Category D: Debt adjusting
If you help people with their debt problems by taking over their debts or negotiating on their behalf, you are likely to need to apply for Category D (where the debts arise under consumer credit or hire agreements).

 

  • Category D2: Non-commercial debt adjusting
This limits you to offering debt adjusting services on a noncommercial basis only. You should not apply for this limited category if any of your debt-adjusting and/or consumer credit or ancillary credit activities are carried out on a commercial basis (see definition in Category D above), even if you also provide some such services on a non-commercial basis.

 

  • Category E: Debt counselling
 If you want to advise individuals about how to discharge specific debts, you are likely to need to apply for Category E (where the debts arise under consumer credit or hire agreements). Your business is classified as Category E if you intend to provide debt counseling services with no limitation. This would allow you to provide such services on a commercial basis (that means that you will charge a fee or otherwise receive any remuneration for providing such services and/or in the course of carrying on any consumer credit or ancillary credit business and do not operate, for example, solely as a non-commercial charitable service). You are likely to require this category if you provide any consumer credit or ancillary credit services on a commercial basis.

 

  • Category E2: Non-commercial debt counselling
 This limits you to offering debt counselling services on a non-commercial basis only. You should not apply for this limited category if any of your debt counselling and/or consumer credit or ancillary credit activities are carried out on a commercial basis (see definition in Category E above), even if you also provide some such services on a noncommercial basis.

 

  • Category F: Debt collecting
If you collect debts due to others, arising from credit or hire agreements (whether regulated or exempt), you are likely to need to apply for Category F. You do not need to apply for Category F:

 

 if you merely collect your own debts, except where the debts have been assigned to you
 if you merely collect rent due under a normal tenancy agreement
 if you only collect debts due from companies.

 

  • Category G: Debt administration
From October 2008, if you want to carry out activities (other than debt collection) relating to consumer credit or consumer hire agreements on behalf of another person who is the creditor, including someone to whom the agreement has been assigned (in the case of consumer credit), or owner (in the case of consumer hire) you will need to apply for Category G.

 

  • Category H1: Provision of credit information services (including credit repair)
From October 2008, you will need this category if you want to seek to alter, or secure the omission of, information about an individual's financial standing and/or seek to restrict the availability of the information and to provide such services on a commercial basis. (that means that either you will charge a fee or otherwise receive any remuneration for providing such services and/or in the course of carrying on any consumer credit or ancillary credit business and do not operate, for example, solely as a non commercial charitable service).

 

You do not need this category to seek to obtain information on your own behalf. You will probably not need this category if you simply provide free information in a publicly available way, for example in books or websites available to the world at large.

 

  • Category H: Provision of credit information services (excluding credit repair)
This category applies from October 2008, and limits you to being able to provide credit information services excluding the altering of, or securing the omission of, information about an individual's financial standing and/or seeking to restrict the availability of such information You should not apply for this limited category if you provide or intend to provide any of the excluded (credit repair) services described above. It is a contrary to legislation to carry out credit repair services if your licence only covers you to undertake the limited activities permitted under Category H.

 

  • Category H3: Non-commercial credit information services (including noncommercial credit repair)
This category applies from October 2008, and limits you to seeking to alter, or secure the omission of, information about an individual's financial standing and/or seeking to restrict the availability of the information on a non-commercial basis only. You should not apply for this limited category if any of your credit repair and/or consumer credit or ancillary credit activities are carried out on a commercial basis (see definition in Category H1 above), even if you also provide some such services on a non-commercial basis.

 

  • Category I: Credit reference agency
If you want to collect information about the creditworthiness of people with a view to giving it to others, you will be regarded as a credit reference agency and are likely to need to apply for Category I. Merely giving references based on records of your own dealings with customers, however, does not make you a credit reference agency.

 

You may be regarded as a credit reference agency if, on behalf of fellow members of a group of companies, you hold information about customers dealing with members of the group and supply this information to others in the group.

If you apply for Categories A, C G or I you may need to submit a Credit Risk Profile as part of your application in order to assist the OFT's consideration of your fitness to be licensed and to enable it to make further decisions on the level of scrutiny which it will apply to your business if the licence is granted.

 

If you apply for Categories D, E, F,H1 you will need to submit a Credit Competence Plan as part of your application in order to assist the OFT's consideration of your fitness to be licensed and should expect to be subject to an inspection of your business.

 

Please note that even if you have a licence to carry out category A activities (which is the most difficult to attain) it only authorises the specific activities mentioned in the licence and therefore it is likely you will require additional sanction for each activity.

 

For advice, assistance in completing applications or for further information please contact

Stephen MacGregor    (sxm@tcyoung.co.uk)

0141 221 5562    

 

This e-briefing is intended as a guide and does not provide a comprehensive statement of the law.  Legal advice should be sought on individual circumstances.