(Note: the below is a high level review of certain potential issues and is not to be relied upon in any definitive manner nor as legal and/or regulatory advice).

The UK Financial Conduct Authority (FCA)  will introduce new rules for credit brokers on and from 2 January 2015. The new rules can be found via the FCA’s Policy Statement PS14/18.

There is no transitional period for complying with the new rules and there has been no prior consultation, meaning that applicable firms must ensure that their systems and procedures comply by 2 January 2015. The FCA believes the new rules are to be implemented in this manner to protect the interests of consumers. However, please note that the FCA is intending on carrying out a consultation in January 2015 on a variety of consumer credit matters and in doing so, whether the new rules should be retained, modified and/or supplemented.

What are ‘credit brokers’

For the purpose of UK financial services regulation, a credit broker is a person that carries on an activity, by way of business, of the kind specified in article 36A of the Regulated Activities Order. Under this article the applicable activities include:

• Effecting introductions relating to credit agreements
• Effecting introductions relating to consumer hire agreements
• Effecting credit agreement and consumer hire agreement introductions to persons that effect credit agreement and consumer hire agreement introductions by way of business
• Presenting or offering an agreement that would, if entered into, be a regulated agreement
• Assisting with preparatory work relating to entering into a regulated credit agreement
• Entering into a regulated credit agreement on behalf of a lender

Many online businesses (including non-financial sites) that allow consumer credit advertisements to appear on their site should be particularly mindful as to whether they fall within the scope of the above activities.

What are the new rules?

The FCA website provides the following summary of the new rules:

• The rules will ban credit brokers from charging fees to customers, and from requesting customers’ payment details for that purpose unless they meet FCA requirements.
• These include that credit brokers must make sure customers are given clear information about who they are dealing with, what fee will be payable, and when and how the fee will be payable.
• Fee-charging brokers will need to notify the FCA, quarterly, of the websites they operate.
• All brokers will need to include their legal name (as it appears in the FCA Register) in all advertising and all correspondence with customers.
• Advertising must clearly state that the firm is a credit broker and not a lender; if the firm is both a credit broker and a lender, the advertising will need to make clear that they are advertising their broking services, not their lending.
• There are additional rules on cancellation rights for distance contracts (for example, online credit broking), including rights to a refund.

Why are the new rules being introduced?

It will come as no surprise to those who have been following the recent enforcement actions taken against high-cost short-term credit lenders that there has been consequential actions to brokers as well – particularly those markets targeting certain vulnerable borrowers.

The FCA have stipulated concerns focused on:

• 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)

The new rules aim to resolve some of the mischief of the above and the new rules will have a bigger impact to those brokers that charge fees.