Credit

If you, as part of your business, lend money, offer or arrange credit or hire out goods, you may need a consumer credit licence. You do not need a licence if you only accept credit cards.

Are you a credit broker?

If you introduce people to sources of credit or hire, you are a credit broker - you may be a retailer who asks a finance company to finance a purchase made by one of your customers or perhaps you are a mortgage broker who helps someone obtain a loan from a bank or building society to buy a house. Credit brokerage also includes introducing people to other credit brokers.

What credit brokers need to know

• You can charge your customers a fee for your services but if the customer does not enter into an agreement for the credit or hire within 6 months of your introduction
  • you can't ask for more than £5 (it doesn't matter why the customer does not go ahead with the agreement, even if it is just a change of mind).
  • the customer is entitled to ask for a refund of the excess if he has already paid more than £5, and can sue if you refuse.
  • the rules about fees also apply to mortgage broking where your customer wants to borrow money to provide a dwelling for himself or one of his relatives. However, they do not apply to mortgages for commercial properties, if the amount to be borrowed is more than £25,000), it is the primary function of the property that will determine whether the fee limit applies or not.
  • if the amount of credit involved is more than £25,000 you may still charge your customer for genuine expenses you have incurred, such as survey fees. However, if the amount of credit is £25,000 or less, then the customer will be able to recover virtually any payment he has made (either to you or direct to a third party connected to the agreement) with the exception of the £5.
  • you must have a consumer credit licence for your business. This can be obtained from the Office of Fair Trading.

Important notes

• You must not tell your customers that your fees are non-returnable (except in the case of genuine disbursements as mentioned above); or put any clause in your contract to this effect. You cannot take away the customer's rights.
• You should not keep your customer's money for the full 6 months if there is no prospect that an agreement will result.
• If you attempt to evade this legislation, the Office of Fair Trading may view it as an unfair business practice and review your fitness to hold a consumer credit licence.
• The law currently applies equally to your dealings with business customers (other than commercial mortgages as mentioned above), unless they are limited companies.
• There are also rules that govern the documents and information to be given in credit agreements and rules that govern all adverts (including those on the Internet) that include an offer of credit.

Do you advertise credit?

Adverts offering credit or hire facilities to consumers are controlled by the Consumer Credit (Advertisements) Regulations 1989. The aim is to ensure that customers receive a true picture of the nature and cost of credit terms being offered.

Further information about credit advertising can be found at www.oft.gov.uk/Business/Legal+Powers/Consumer+Credit+Act.htm

Do you provide credit?

Consumer credit agreements regulated by the Consumer Credit Act can be cancellable or non-cancellable. Both kinds must be made in writing and provide specified information in the way set down in regulations. Rules also govern how and when you supply consumers with copies of agreements.

Further information about agreements and matters arising during the lifetime of an agreement can be found at www.oft.gov.uk/Business/Legal+Powers/Consumer+Credit+Act.htm

Financial Services Act

Organisations or individuals offering financial services or advice must register and comply with this Act. It may be illegal to offer such advice in certain foreign countries via the Internet. Anyone seeking to offer such services should seek professional advice.

Further information can be found on the Financial Services Authority website at www.fsa.gov.uk

Electronic Commerce Directive (Financial Services and Markets) Regulations 2002

The Regulations amend the Financial Services and Markets Act 2000 and will apply to you regardless of where in the European Economic Area your services are actually provided.

Further information can be found on the Financial Services Authority website at www.fsa.gov.uk

Other controls on advertising financial services and products

Internet advertising is self-regulated through the Advertising Standard's Authority (ASA's) Code of Practice. This states that adverts must be Legal, Decent, Honest and Truthful.

The ASA can take action to have an advert withdrawn or changed without having to wait for a complaint.

The ASA Codes can be viewed at www.asa.org.uk. The following rules are specifically for financial services and products but the Code also contains general requirements applicable to all adverts or promotions:

• Offers of financial services and products should be set out in a way that allows them to be understood easily by the audience being addressed. Advertisers should ensure that they do not take advantage of people's inexperience or gullibility.
• Adverts should indicate the nature of the contract being offered, any limitations, expenses, penalties and charges and the terms of withdrawal. Alternatively, where an advert is short or general in its content, free explanatory material giving full details of the offer should be readily available before a binding contract is entered into.
• The basis used to calculate any rates of interest, forecasts or projections should be apparent immediately.
• Adverts should make clear that the value of investments is variable and, unless guaranteed, can go down as well as up. If the value of the investment is guaranteed details should be included in the advert.
• Adverts should specify that past performance or experience does not necessarily give a guide for the future. Any examples used should not be unrepresentative.
  

Please Note

This leaflet is not an authoritative interpretation of the law and is intended only for guidance. For further information please contact your local Consumer Protection or Trading Standards office.

Trading Standards Division, 3rd Floor, Wallasey Town Hall, Brighton Street, Wallasey, Wirral CH44 8ED
Telephone: (0151) 691 8020    Fax: (0151) 691 8098
Internet World Wide Web http://www.tradingstandards.gov.uk/wirral/
Electronic Mail: tradingstandards@wirral.gov.uk