The Rules set out to tackle the FCA's overarching key concern in respect of credit broking, namely, the charging of upfront fees by credit brokers. The FCA, in its policy statement, states that its main concerns are as follows:
- consumers not realising they are dealing with a broker rather than a lender;
- a lack of informed consent to the taking of fees, for example, where terms and conditions are hidden or misleading;
- consumers being misled as to the purpose of giving their payment details;
- firms passing on consumers’ details, including their payment details, without informed consent, to other firms who also take a fee; and
- consumers facing difficulty in identifying the firm that has taken a payment and in obtaining a refund from the firm or a response to their complaint.
What do the Rules say?
The Rules apply to:
- all authorised firms carrying on credit broking irrespective of whether or not it is in relation to a regulated credit agreement; and
- any fee regardless of how it is described.
The Rules do not apply to credit broking of loans secured on land.
Fees and payment details
Credit brokers can no longer charge any fees, regardless of whether such a fee is payable to that firm or a third party, or request payment details from customers for the purpose of charging any fees unless an explicit notice is given to the customer which provides the following key information: (i) the firm's legal name (i.e. the name as it appears in the FCA's Financial Services Register), (ii) its trading name and contact information; (iii) that the firm is a credit broker and not a lending institution; and (iv) whether a fee will be payable, the amount of such fee and the means by which such a fee will be payable. Crucially, the customer must also acknowledge such a notice from the credit broker by confirming that he/she is aware of its contents (the "Customer Confirmation"). It is not enough that the credit broker has simply provided the information.
The FCA also requires credit brokers to ensure their websites (and any other relevant systems) are compliant with the Rules, for example, a consumer should not be able to access any webpage that enables them to provide their payment details unless and until they have given the Customer Confirmation. It is important to note that if a credit broker obtains any payment details from a consumer with a view to passing these to a third party, that third party will also need to issue the information notice and receive the Customer Confirmation before charging any fee.
The information provided must also be given, and acknowledged by the customer, in a "durable medium". In other words, the information must be given in such a way that allows the recipient to store the information for future reference, for example, by letter or by email. Emailing a link to a webpage that contains the notice and statements or making the notice available on a website are examples which are both specifically stated in the Rules to be insufficient. It follows from the durable medium requirement that credit brokers must keep records of the information sent to the customer and the Customer Confirmation.
The Rules extend to any financial promotions or other communications with customers. The credit broker's legal name together with a prominent statement that they are a credit broker and not a lender must be on all such promotions and communications. If the firm is both a credit broker and a lender but the financial promotion is in respect of credit broking, they must make it clear that such a service is only provided in respect of credit broking and not lending.
The FCA must be notified quarterly of credit brokers' web domain names within 30 business days of the end of the relevant quarter. This is to ensure the FCA is aware of who is responsible for the website. This requirement applies to credit brokers with interim permission and full authorisation.
The consumer can cancel the credit brokerage agreement, if it is a distance contract, without penalty and without any reason within 14 days of conclusion of the contract in which case the credit broker must refund any fees charged within 30 days.
Distance contracts are defined by the FCA as contracts concerning financial services concluded between a supplier and a consumer under an organised distance sales or service provision scheme run by the supplier which, for the purpose of that contract, makes exclusive use (directly or through an intermediary) of one or more means of communication without the simultaneous physical presence of the supplier or intermediary and the consumer up to and including the time at which the contract is concluded.
So what does this mean?
It is essential that credit brokers review their systems and procedures so as to ensure they are compliant with the Rules. The FCA has advised that it is already taking supervisory and enforcement action against credit brokers for non-compliance. Prior to the introduction of the Rules, the FCA had closed seven credit brokerage firms to new business and referred three firms for enforcement action. The fact that the Rules were introduced without consultation shows that this is clearly a priority for the FCA and as such the importance of abiding by the Rules cannot be overstated.