CONC 15.1 Application
This chapter applies to:
- (1)
a firm with respect to consumer credit lending in relation to regulated credit agreements secured on land; and
- (2)
a firm with respect to credit broking in relation to credit agreements secured on land.
Firms which carry on consumer credit lending or credit broking should comply with all rules which apply to that regulated activity in CONC and other parts of the Handbook. For example, CONC 7 applies to matters concerning arrears, default and recovery (including repossession) and applies generally, including to agreements to which this chapter applies. This chapter sets out specific additional requirements and guidance that apply in relation to credit agreements secured on land (see CONC 1.2.7G). Certain arranging and introducing activities in relation to investment property loans (as defined by article 61A of the Regulated Activities Order),4 regulated mortgage contracts and home purchase plans4 are excluded, to the extent specified in article 36E of the Regulated Activities Order, from credit broking.3
1Conduct
The financial promotion rules in CONC 3 apply to firms' financial promotions concerning credit agreements secured on land, apart from the extent to which a financial promotion or communication concerns qualifying credit. CONC 3.3.1 R requires financial promotions to be clear fair and not misleading; firms should take particular care with respect to explaining the nature of the credit to be provided and the costs of borrowing.
A firm must make clear in advance the purpose of any visit off trade premises (which has the same meaning as in section 48 of the CCA) at which the customer may enter into a regulated credit agreement.
In good time before a credit agreement is made and, where section 58 applies, before an unexecuted agreement is sent to the customer for signature a firm must:
- (1)
disclose key contract terms and conditions of the prospective credit agreement;
- (2)
disclose any features of the prospective credit agreement which carry a particular risk to the customer;
- (3)
inform the customer of the consequences of missing payments or of making underpayments, including the imposition of default charges, the risk of repossession of the customer's home, in relation to the customer's credit record and of inability to obtain credit in the future;
- (4)
inform the customer about the circumstances in which the rates or charges may change, in particular, if they may be varied at the discretion of the firm or can vary subject to a reference rate of interest; and
- (5)
if the rate of interest can vary subject to a reference rate of interest, other than that of the Bank of England’s base rate, inform the customer of the reference rate in question and the rate to be applied.
Where appropriate, the disclosure required by CONC 15.1.5 R2 should be explained orally to the customer.
2Where a firm has reasonable grounds to suspect that the customer does not understand material aspects of the obligations they will take on and the resulting risks, under a regulated credit agreement, the firm:
- (1)
must not enter into a regulated credit agreement; and
- (2)
must provide further explanation of any such obligations or risks.
Before a customer enters into a regulated credit agreement, the firm must:
- (1)
encourage the customer to read all contractual documentation carefully;
- (2)
take reasonable steps to ensure the customer has understood the nature of the obligations the customer will take on and the resulting risks;
- (3)
encourage the customer to obtain independent advice; and
- (4)
permit the customer an adequate opportunity to seek and obtain such advice.
Before a regulated credit agreement secured on land is entered into:
- (1)
the firm should consider the adequate explanations it should give to the customer under CONC 4.2; and
[Note: paragraph 3.1 (box) of ILG]
- (2)
the firm is required under CONC 5.2.2 R (1) to assess the potential for commitments under the agreement to adversely impact the customer's financial situation.
[Note: paragraphs 1.14 and 4.1 of ILG]
In accordance with PRIN 9 (customer: relationships of trust):
- (1)
a firm must take reasonable steps to ensure the suitability of its advice, which would include acting in the best interests of a customer where the firm makes a recommendation;
- (2)
if it appears to the firm that entering into a regulated credit agreement secured on land is not in the best interests of the customer, that fact should be made clear to the customer; and
- (3)
the firm should encourage the customer to consider whether the credit can be afforded, including in the event the customer's circumstances change, for example, through a change in employment or retirement.
A firm must set out the nature and purpose of the fees and charges payable by the customer, including any fees or charges payable on the customer's default:
- (1)
in the credit agreement; and
- (2)
in any booklet or leaflet relating to the agreement.
Where rates and charges under a credit agreement are variable, a firm must:
- (1)
before entering into the agreement, explain to the customer the consequences of such variations on the amount of periodic instalments payable and on the total amount payable;
- (2)
only increase rates or charges to recover genuine increases in costs of the firm which have an effect on the credit provided under the agreement; and
- (3)
explain to the customer before changing any rate or charge under the agreement.
Where a customer wishes to make repayments ahead of time:
- (1)
a firm's charges for early repayment must be fair and reasonable and must reflect the firm's necessary costs in relation to such repayment;
- (2)
the firm must fully explain the process and costs involved in early repayment; and
- (3)
the firm must allow the customer to make part early repayment of the capital.
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