At MEMA, we believe in upskilling our readers and clients as much as possible. We will be releasing brief explanations into Financial Conduct Authority (FCA)-regulated areas, so you can understand quickly what are the requirements in that area. Our first area will be Credit Broking.
Credit broking definition
Credit broking can occur in two types of use cases.
when a business introduces a customer to a finance or credit provider
a customer has been introduced to another credit broker, who then introduces them to a finance or credit provider
An example of credit broking might be where a customer is looking for a loan online and uses a business to find or recommend a finance or credit provider.
Credit broking permission guide
Credit broking includes making introductions for individuals seeking a credit agreement or consumer hire agreement, an example is short-term credit
This covers regulated credit agreements and regulated consumer hire agreements
Where credit broking activity is secondary to your main business activity such as selling motor vehicles, you will require limited permission credit broking permissions
Depending on your proposed business model you may fall into one of two types of credit broking activities, Full Authorisation or Limited Permission Credit Broking
There is a set of key (non-exhaustive rules) your business must adhere to:
explain to the customer the key features of a regulated credit agreement
take reasonable steps to show that a product you wish to recommend to a customer is not unsuitable for the customer's needs and circumstances
advise a customer to read, sufficient opportunity to consider the terms and conditions of a credit agreement or consumer hire agreement before entering into it
before referring a customer to a third party which carries on regulated activities or to a claims management service or other services, (such as presenting to the customer a privacy notice)
obtain the customer's consent,
after having explained why the customer's details are to be disclosed to that third party;
bring to the attention of a customer how your firm uses their data collected, and a simple method to disclose or cancel consent of their data
take reasonable steps not to pass a customer's personal data to a business which carries on a credit-related regulated activity for which the business has no permission
follow rules under CONC 2.5.5 credit references
follow clearly stipulated rules on unsolicited calls and numbers
As a credit broking firm, your key sourcebook is CONC 2.5 Conduct of business: credit broking. You must also be cognisant of Financial Promotion rules and the Consumer Credit Act 1974.
Treating Customers Fairly
In this industry treating customers fairly is a key requirement. We have outlined some key complaints that firms in the industry face:
the customer being charged a fee by a credit broker for finding a loan. Sometimes they’ve been charged a fee even when they haven’t actually got a loan
the customer has not had their fee refunded when they’ve not taken out, or even been offered, a loan
the customer is misled or not correctly informed about the terms or cost of the loan
Watch out for our next release on another regulated FCA area.
If you are looking to become authorised by the FCA as a credit broker or vary your regulatory permissions to include the permissions, reach out to us via our contact page. Do also check out our in-depth page on credit broking.