WIREDGOV

New consumer credit licensing requirements to start in October

OFFICE OF FAIR TRADING News Release (100/08) issued by The Government News Network on 27 August 2008

The OFT is calling on businesses to take the necessary steps to be ready for changes to the consumer credit licensing regime that come into force in the autumn.

From 1 October 2008, businesses offering debt administration or credit information services (which may include credit repair) will need to be appropriately licensed by the OFT.

The new debt administration licence category is required by those businesses wishing to administer debts under consumer credit or consumer hire agreements on behalf of the creditor.

There are also three new categories available to those wishing to provide credit information services and businesses need to ensure that they select the correct category. The new categories apply to businesses wishing to:
* obtain information from credit reference agencies on behalf of other people, offer advice about the information obtained and to be able to secure corrections or amendments to such information, on a commercial basis,
* obtain information from credit reference agencies on behalf of other people and offer advice about the information obtained on a commercial basis, but without being able to secure corrections or amendments to such information, and
* obtain information from credit reference agencies on behalf of other people, offer advice about the information obtained and to be able to secure corrections or amendments to such information, but providing these services on a non-commercial basis only.

The OFT considers aspects of both debt administration and credit information services, in particular credit repair services offered on a 'commercial' basis, to constitute high risk credit activities.

Consequently, businesses applying for these licence categories are likely to be subject to additional scrutiny at the application stage and may be subject to on-site inspections to assess their competence to engage in these activities.

Any business carrying out these activities from 1 October onwards, without an appropriate licence, is likely to be committing a criminal offence and could face prosecution. Businesses are encouraged to apply early for any new licence categories they may need in order to ensure that their applications can be processed before the 1 October deadline.

David Philpott, OFT Deputy Director of Consumer Credit, said:
'The requirement for businesses that wish to provide these services to be licensed by the OFT is an important part of the Government's reforms to further strengthen the regulation of credit markets. Businesses wishing to provide these services from 1 October onwards will need to satisfy the OFT that they are fit to do so.'

NOTES

1. The Consumer Credit Act 1974 (the Act) requires most businesses that offer goods or services on credit or for hire, or that lend money to consumers, to be licensed by the Office of Fair Trading (OFT). Some small businesses count as consumers for these purposes.

2. The Consumer Credit Act 2006 strengthened the Act and many of the reforms aimed at updating key licensing provisions came in to force on 6 April 2008. The remaining reforms are due to come into force on 1 October 2008 and will expand the scope of categories of ancillary credit business for which consumer credit licences are required.

3. The new categories of licence are:
* Debt administration (Category G). (This does not include collecting debts, which would require the separate licence category F to cover debt collecting)
* Credit information services excluding credit repair (Category H)
* Credit information services including credit repair (Category H1)
* Non-commercial credit information services including non-commercial credit repair (Category H3)

4. Businesses will need 'commercial' rather than non-commercial categories if they or their associates charge a fee or otherwise receive remuneration in connection with the provision of such services and/or in the course of carrying on any consumer credit or ancillary credit activities. The only types of organisation that are likely to require non-commercial categories are non-fee charging charities or similarly altruistic organisations.

5. There are other licensing changes taking place which relate to those engaging in debt collection and debt purchasing. If a business collects debts due to others, arising from consumer credit or hire agreements (whether regulated or exempt), it is likely to require licence category F to cover debt collection. From 1 October 2008, a business does not need Category F if:
* it is collecting debts that have been assigned to it, so that in effect the business becomes the creditor.
* it purchases debts - and again in effect becomes the creditor

However, as creditors, such businesses will be engaged in 'consumer credit business' for the purposes of the Consumer Credit Act 1974, and as such are likely to require Category A licences. If a debt purchasing business also engages in debt collection on behalf of other creditors, that business will require a licence covering both Category A and Category F.

6. For further information on licence categories see the OFT guidance Do you need a credit licence? (OFT147) which can be downloaded from the OFT web-site. The information contained both in this guidance document and in this press notice should not be taken to be a complete statement of the law. The range of credit business is very wide and the law can often be complex. If you are unsure about how your business might be affected, you should refer to the Consumer Credit Act 1974 and, if necessary, consider seeking professional legal advice.

7. The OFT issued guidance for providers of debt management services in 2001. The Debt Management Guidance (DMG) sets out minimum standards of behaviour expected of licence holders who seek to re-schedule customers' repayment of debt and charge for doing so. The spirit as much as the letter of the DMG would apply to businesses engaged in the provision of commercial credit information services, including, credit repair. The guidance is currently being updated to take into account the licensing reforms.

8. For information on the OFTs risk-based approach to consumer credit licensing see the OFT publication Consumer credit licensing: General guidance for licensees and applicants on fitness and requirements (OFT969) which can be downloaded from the OFT web-site.

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