Consumer credit regulation
On 1 April 2014 the Financial Conduct Authority (FCA) took over the regulation of consumer credit from the Office of Fair Trading (OFT). Consumer credit is now regulated under the Financial Services and Markets Act (FSMA) and the Regulated Activities Order (RAO), in a similar way to Investment Business.
ICAS has arrangements in place which enable firms to provide consumer credit services without the need for authorisation from the Financial Conduct Authority (FCA). There's no application to complete and no fee to pay. If firms meet the eligibility criteria, then such consumer activities can be undertaken, provided that they are undertaken as set out in the DPB (Consumer Credit) Handbook. As these arrangements are made under Part XX of the Financial Services and Markets Act 200, the service may only be provided in a manner incidental to the activity of the firm generally, and which arises out of, or is complementary to, another professional service, which is not itself a regulated activity, provided to a specific client (as with investment business).
A firm authorised by the FCA cannot use these arrangements. It must hold the relevant FCA permissions to undertake credit-related regulated activities.
News Alert - 2 March 2016: ICAS consumer credit regulations – effective from 1 April 2016
The Financial Conduct Authority (FCA) has approved our new consumer credit regulations, called the Designated Professional Body (Consumer Credit) Handbook. These new arrangements will come into effect on 1 April 2016 and our transitional arrangements will cease. The link to the Handbook is at the bottom of the page.
News Alert - 25 February 2015
Following lobbying by ICAS and many other bodies, Parliament has approved a statutory instrument effective from 18 March 2015, which de-regulates instalment credit where there are 12 or less payments in a 12 month period and there is no interest charged. This is good news for many of our firms whose only previous involvement in consumer credit was offering clients the ability to pay fees by monthly instalment. Effective from 18 March 2015 this activity will no longer fall within consumer credit regulation. This exemption is not, however, retrospective and will only apply for agreements entered into on or after 18 March 2015. If firms wish to take advantage of this exemption, new agreements with clients will be required and firms must obtain each client's written consent to any new agreement.
For any Instalment credit agreements entered into before 18 March 2015 the previous exemption applies, which are that these are only exempt credit agreements where there are 4 payments or less in a 12 month period, with no interest or charges (except for default charges). For any instalment credit agreements which are not exempt, the consumer credit firm must continue to comply with our Consumer Credit (Transitional Arrangements) Regulations for now and in due course the permanent (Consumer Credit) Handbook.
For more information about the instalment exemption please refer to the Instalment Credit Exemption below.
Helpsheets & Videos
We are in the process of developing helpsheets and videos for this area. This content will be available soon. Please visit this section of the website again.
What Authorisation do I require
Firms conducting consumer credit activities will require to be either:
- A regulated consumer credit firm with the FCA (or as an appointed representative of an FCA firm);or
Be covered by one of the professional bodies’ Designated Professional Body (DPB) arrangements as an Exempt Professional Firm (also called the Part XX regime) - as long as the consumer credit activities are incidental and the firm is eligible under the DPB arrangements.
Is my firm eligible to be an Exempt Professional Firm under the ICAS DPB (Consumer Credit) arrangements?
If you conduct consumer credit activities and meet our three requirements below your firm will be automatically covered by our DPB (Consumer Credit) arrangements. No application process is needed and no fee is required.
There are three main requirements:
1. Your firm must be an eligible firm
Regulation 2.02 of the DPB (Consumer Credit) Handbook sets out which firms are eligible to be covered by our new DPB arrangements, which are:
If you meet one of these criteria you are eligible. If your firm does not meet one of these requirements, you may become eligible if you take out a DPB (Investment Business) Licence with ICAS (or Audit Registration with ICAS).
|2. Your firm must not be authorised by the Financial Conduct Authority for either investment business or consumer credit|
FSMA requires each firm to hold the same status for consumer credit and investment business because the two are considered together in legislation.
If you hold FCA authorisation for investment business, you will also require to extend your authorisation with FCA to cover consumer credit.
If you hold a DPB (Investment Business) Licence for investment business but require to become regulated by the FCA for consumer credit you will require to extend your FCA authorisation to cover investment business (this is not required during the interim permission stage but when you are asked to apply for final approval).
If your investment business and consumer credit activities are conducted in separate entities then you are able to hold different statuses as each ‘legal entity’ firm requires to be considered on its own.
|3. The consumer credit activities must be incidental, complimentary and arising out of professional services, which are not themselves regulated activities.|
Incidentality is explained in Schedule 2 of the handbook and in this web page. If your activities do not meet those requirements you will require to obtain FCA authorisation.
If you need any assistance or advice please contact us at 0131 347 0282 or email@example.com.
If you think you might need FCA authorisation, please contact the FCA FCA Consumer Credit Authorisation
What is Consumer Credit?
Who is a consumer?
Consumer credit activities are only regulated if they are provided to a consumer client. A consumer client is defined in legislation and is included as a defined term in our DPB (Consumer Credit) Handbook:
- An individual (that is a natural person)
- A partnership consisting of two or three persons of which at least one partner is an individual
- An unincorporated body that does not consist entirely of bodies corporate and that is not a partnership.
An example of the last item would be an unincorporated charity.
There is one exception to this - for the purposes of debt administration only, a consumer client also includes any person including a body of persons corporate.
What are consumer credit activities?
This guide should help you in identifying whether you are conducting any consumer credit activities Guidance on Credit Related Regulated Activities.
ICAS has also published further guidance on when advising a client becomes the regulated activity of debt counselling: Guidance on Consumer Credit Debt Counselling
Instalment Credit Exemption
If you offer your clients the facility to spread their professional fees, by allowing fee payment by instalment, this is a regulated consumer credit activity (called ‘entering a regulated credit agreement’). Unless you can apply one of the exemptions available:
The following instalment arrangements are exempt:
- Instalment credit agreements entered into before 18 March 2015: where there are 4 payments or less in a 12 month period, with no interest or charges (except for default charges).
- Instalment credit agreements entered into on or since 18 March 2015: following lobbying by ICAS, and other affected bodies, the instalment credit has been extended to 12 instalment payments or less in a 12 month period, with no interest or charges (except for default charges). However firms wishing to apply this exemption require to ensure all client agreements are dated on or after 18 March 2015;
Agreeing new terms on or after 18 March 2015
If you want to avail of the new 12 payment exemption, you will require to refresh your engagement terms with your clients. The FCA has indicated that notifying your clients is not enough and that it is important to obtain the client’s agreement to the new terms in writing e.g. by issuing new engagement letters or new standards terms and obtaining the clients’ agreement.
Sample engagement letter wording: ‘We offer you the facility to pay your professional fees by [monthly][quarterly] instalments. We do not charge any interest or charges [except for default charges]. As these terms have been agreed after 18 March 2015 this instalment agreement is not a regulated credit agreement.’
The DPB Consumer Credit Handbook
If you do not conduct any consumer credit activities (called credit-related regulated activities in the handbook) you don’t need to comply with the Handbook.
If, however, you conduct such activities you will require to apply our Handbook if you are covered by our DPB (Consumer Credit) arrangements (see previous menu items).
The Handbook replaces the transitional arrangements.
We will be issuing helpsheets in due course to guide you through the Handbook.
What does incidental mean?
To be covered by our DPB (Consumer Credit) arrangements you need to ensure that all consumer credit activities (called ‘credit-related regulated activities’ in our Handbook) are incidental, complimentary and arise out of professional services, which are not themselves regulated activities.
These requirements are set out in regulations 3.04 and 3.05 of the Handbook. Guidance on incidentality is set out in Schedule 2 of the DPB (Consumer Credit) Handbook.
A firm should be able to show that:
- is mainly concerned with providing professional services other than regulated activities; and
the provision of any regulated activities is not isolated from the firm's other activities such that there is in effect a separate business.
When any set of services, such as auditing, accounting or taxation, are provided to a consumer client the services will not necessarily be provided in a particular order - the exempt credit-related regulated activity can be provided to the consumer client as the first service.
Consumer Credit changes impact on Insolvency
Insolvency Practitioners can avail of a statutory exclusion while acting as an Insolvency Practitioner in respect of the activities of:
- debt adjusting;
- debt counselling;
- debt collecting;
- debt administration; and
- providing credit information services.
This exclusion extends to when an Insolvency Practitioner is acting in "reasonable contemplation of appointment". In this case, the relevant activities are:
- debt adjusting;
- debt counselling; and
- providing credit information services.
The exclusions also apply to those working for the practitioner. The legislation does this by including within the definition of "'acting as an insolvency practitioner" (or acting in "reasonable contemplation" of appointment) the insolvency practitioner’s:
- partnership (if the IP is a partner); or
- LLP (if the IP is a member of an LLP).
These are "exclusions" rather than "exemptions". So if the insolvency practitioner carries out other credit-related regulated activities that require FCA authorisation, then FCA authorisation will be required unless the firm is eligible to avail of the ICAS DPB arrangements.
For firms to use the DPB (Consumer Credit) Handbook all their Insolvency Practitioners must be licensed by ICAS (or ICAEW or CAI).
- Can firms which have FCA authorisation for consumer credit apply PROF 5.2 for any non-mainstream investment business of consumer credit activities?
- No, as ICAS has no regulatory scope for investment business or consumer credit activities undertaken by FCA ‘Authorised Professional Firms’, ICAS does not monitor the investment business or consumer credit activities of those firms.
- Such firms cannot therefore adopt the DPB (Consumer Credit) Handbook or DPB (Investment Business) Handbook and must apply the FCA Handbook to all mainstream and non-mainstream investment business and consumer credit activities.
If you have any consumer credit queries please contact firstname.lastname@example.org or 0131 347 0286.
A notice for firms with interim permission with FCA for Consumer Credit activities and who were DPB licensed for Investment Business
By virtue of a statutory instrument issued on 27 March 2014 (The Financial Services and Markets Act 2000 (Consumer Credit) (Transitional Provisions) (No. 2) Order 2014) a firm that before 1 April 2014 held an OFT standard licence and after that date has an interim permission to undertake credit related regulated activities will be able to use the DPB exemption, for a transitional period, for other exempt regulated (investment business) activities as set out in the DPB handbook. This transitional period end will end when the FCA notifies the firm that it has 'full' permission. At that point when the firm obtains full permission for consumer credit activities it will no longer be eligible to hold a DPB licence for investment business and will have to cease the investment business and other activities permitted by the DPB Handbook. If it wishes to continue to undertake such activities (after receiving full FCA permission for credit-related regulated activities) the firm should apply to the FCA for permission to undertake such activities.