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.
http://www.oft.gov.uk
PUBLIC enquiries: 0845
7224499
enquiries@oft.gov.uk
OFT reports and consumer
information leaflets are available free from:
OFT, PO Box 366,
Hayes UB3 1XB 0870 6060321 oft@eclogistics.co.uk