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OFT guidance for brokers, intermediaries and the consumer credit and hire businesses

 

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Key message

The primary aim of this guidance is to provide clarity for businesses engaged in credit brokerage and credit intermediaries as to the standards expected of them by the OFT including compliance with their legal obligations.

The guidance sets out how the fitness test under section 25 of the Consumer Credit Act 1974 (CCA) will be applied in respect of credit brokerage activities from advertising and sales through to refunds of fees and complaints handling. It also explains how the OFT may use its various regulatory tools where it has concerns about any aspect of a business's practices or behaviour.

As well as considering a licensee's compliance with its legal obligations, the OFT can consider whether it is engaged in any unfair or improper practices whether unlawful or not. In order to assist business, the guidance provides illustrative examples of the types of behaviour we consider would fall within the category of unfair or improper business practices that would call into question a person's fitness to be licensed.

A number of credit brokers are likely to be credit intermediaries (and vice versa). The guidance sets out the OFT's view on interpretation of s160A CCA (building on guidance issued by the Department for Business, Innovation & Skills), in respect of transparency with regards to their status and the nature and amount of financial consideration being received.

In addition the guidance clarifies what the OFT considers to be the responsibilities of relevant businesses (primarily creditors) for the activities of credit brokers and credit intermediaries with which they do business.

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What is the primary focus of the guidance?

The primary focus of the guidance in relation to improved standards of conduct relates to, where relevant, brokers and/or intermediaries being 'more transparent' regarding their status (independent or otherwise), the payment of fees, the consumer's right to refunds, and the disclosure of commission.

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Why have you produced guidance on credit brokers and intermediaries?

The OFT, as the consumer credit licensing authority, has a statutory duty to issue guidance on how it determines, or proposes to determine, whether persons are fit to hold a consumer credit licence.

We have previously set out the standards of conduct we expect from credit brokers in other OFT guidance documents such as Non-Status Lending guidelines for lenders and brokers (OFT192), Second Charge Lending - OFT guidance for creditors and brokers (OFT1105) and Irresponsible Lending - OFT guidance for creditors (OFT1107). This guidance draws together the pre-existing OFT guidance on credit brokerage in a single document, updated in the light of recent complaints and regulatory experience as well as the recently introduced requirements under the Consumer Credit Directive. The guidance sits alongside the OFT's Irresponsible Lending Guidance for creditors.

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How many responses did you receive to your consultation on draft guidance?

We received 14 responses from consumer and business organisations, individual businesses and individuals. In addition we met informally with a number of consumer and industry representatives during the consultation period to explore the issues.

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Will you be publishing a summary of those responses?

Yes, a response document is in preparation, which we expect to issue early in 2012. This will effectively be a Q&A in respect of the key issues covered in the guidance and should act as a companion document to the guidance. We will also be making amendments to relevant sections of the Irresponsible Lending Guidance early in the New Year to ensure consistency with other more recently published OFT Guidance.

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What changes have you made between the consultation draft and the final guidance?

The guidance now contains more clarity about, amongst other things:

  • the extent of its application to consumer hire
  • the requirements under the Data Protection Act
  • OFT expectations regarding the relationship between broker/intermediary and creditor, particularly as regards to referring borrowers to creditors who provide credit of a type that the borrowers have not indicated that they are seeking.

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Who does the guidance apply to?

The guidance is aimed principally at those engaging, or seeking to engage, in the licensed category of credit brokerage (licence category C) and/or acting, or intending to act, as credit intermediaries. The guidance is also relevant to creditors who use the services of credit brokers and intermediaries and so need to be aware of their responsibilities in relation to such persons.

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How does the guidance affect creditors?

The OFT considers that creditors should take appropriate responsibility for the acts or omissions of credit brokers/intermediaries acting on their behalf. This includes taking all reasonable steps (subject to proportionality considerations) to satisfy themselves that their employees, agents and associates (including business associates) are not engaging in unfair business practices or acting unlawfully and are appropriately licensed, and to take care in selecting third parties with whom to form business associations.

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Did you produce this guidance as a result of the Citizens Advice super-complaint?

No. Production of the guidance was already well under way by the time we received the super-complaint. However, in producing the guidance, we have taken into account both the information in the Citizens Advice submission itself and the information we obtained during our investigation of the super-complaint. The guidance addresses a number of the unfair business practices highlighted in the super-complaint.

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Must credit brokers and credit intermediaries hold consumer credit licences?

All businesses engaged in credit brokerage are required to hold a consumer credit licence with licence category C, issued by the OFT. Any agreement entered into following an introduction by an unlicensed credit broker will be unenforceable without an OFT validation order.

A consumer credit licence is not required in order to be a credit intermediary as such, but credit intermediaries will need an appropriate credit licence if they  engage in credit brokerage or other licensable activities.

All credit intermediaries will need to comply with the requirements under section 160A of the Consumer Credit Act 1974 irrespective of whether they are licensed by the OFT (and failure to do so is a criminal offence).




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