The change is to increase the maximum number of instalments from four to twelve over a maximum 12 month period. The following criteria must be met for the exemption to apply:
- the credit is repayable by no more than 12 instalments, within no more than 12 months;
- it is a borrower-lender-supplier agreement (i.e. it finances the acquisition of specific goods or services);
- it is for a fixed amount; and
- it involves no charges or interest.
An example of where this exemption may be relevant is in the general insurance market, where typically insurers allow policy holders to pay an annual premium in monthly instalments. Provided the insurers make no charge for the instalment option, including no interest, then the exemption will apply.
Other examples might be private school fees, or annual sports club or gym subscriptions, provided the fees or subscriptions are levied without interest or charges, and collected in no more than 12 monthly instalments.
Where the exemption applies, the credit is exempt from regulation under the Consumer Credit Act 1974 (CCA). Further, a firm offering instalment credit agreements which fit within the amended exemption, or firms brokering such agreements, do not need permissions from the FCA for consumer credit. Indeed, provided the firm is not carrying out any other form of regulated credit activity then they would not need to be authorised by the FCA at all.
If the revised exemption applies to you, the FCA has advised that firms need not amend their credit agreements immediately. However, where the exemption applies, credit agreements should not be documented in a CCA regulated form. Firms risk importing all sorts of CCA rights and obligations that would otherwise not apply if they continue to use their CCA regulated agreements.
The FCA has published guidance to firms affected by this change, particularly in relation to their authorisations and interim permissions. Firms who think that the revised exemption applies to them have been invited to let the FCA know by completing a Consumer Credit Notification survey. Alternatively they can cancel their interim permission on the FCA's system, but should only do so if they are certain that FCA permissions are not otherwise required. In giving a reason for the cancellation, you should select 'other' and state that you are applying to cancel as a result of the extension of the instalment exemption.
If you do not believe that this exemption applies to your firm, for example where you levy interest or charges, or you don't offer instalment credit at all, you do not need to take any further action.