The Financial Services and Markets Act 2000 (Miscellaneous Provisions) (No. 2) Order 2015 ("Miscellaneous Provisions Order") came into force on 18 March 2015. It brought certain changes to consumer credit regulation, the most relevant being in relation to exempt agreements under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 ("RAO").
Exemption relation to the number of repayments to be made
Article 60F (2) of the RAO has to date provided that credit agreements would be exempt from regulation if:
- the agreement is a borrower-lender-supplier agreement for fixed-sum credit;
- the number of payments to be made by the borrower is not more than four;
- those payments are required to be made within a period of 12 months; and
- the credit is secured on land or provided without interest or other charges.
Article 60F (2) (b) has been changed by the Miscellaneous Provisions Order. It now provides that a credit agreement will be considered exempt where the same criteria above is met, however it has increased the number of payments to be made by the borrower from 4 to 12.
This means that a borrower-lender-supplier agreement which:
- requires the borrower to repay the debt within one year (i.e. up to 12 instalments to be repaid within 12 months); and
- where no interest or other charges are applied to the amount borrowed;
is now considered exempt from FCA regulation.
Consequences of the changes to the RAO
The above change has significant consequences, not only for lenders, but also consumer credit brokers. Depending on the type of agreements entered into by lenders, or introduced by brokers, those businesses may now benefit from this exemption, and consequently avoid the need to be FCA authorised.
Lenders and credit brokers should nevertheless take care if they decide to change their existing business models in order to benefit from the new exemption and avoid FCA authorisation. If lenders and credit brokers want to avoid FCA authorisation they will need to carefully consider their existing credit agreements. All existing credit agreements, which to date have been considered regulated, would need to be replaced by unregulated agreements, and not simply modified, so to allow for those businesses to dispense with FCA authorisation.
Consumer credit businesses should consider seeking legal advice if they wish to explore the implications of the above legislative changes to their business as well as their regulated status.