CONC 8.3 Pre contract information and advice requirements

CONC 8.3.1RRP

A firm must (except where the contract is a credit agreement to which the disclosure regulations apply) provide sufficient information, in1 a durable medium, when the customer first enquires about the firm's services, about the following matters to enable the customer to make a reasonable decision:

1
  1. (1)

    the nature of the firm's service offered in the contract to the customer;

    [Note: paragraph 3.38b of DMG]

  2. (2)

    the duration of the contract;

    [Note: paragraph 3.38c of DMG]

  3. (3)

    the total cost of the firm's service or, where it is not possible to state the total cost, the formula the firm uses for calculating its fees or charges or an estimate of the anticipated likely total cost may be given;

    [Note: paragraph 3.40c of DMG]

  4. (4)

    any fee or deposit, such as an arrangement fee, a periodic fee, a management fee, or an administrative fee;

    [Note: paragraph 3.38c of DMG]

  5. (5)

    any fee or charge which can be imposed on the customer in relation to cancellation of the contract;

    [Note: paragraph 3.38c of DMG]

  6. (6)

    any other costs likely to be incurred under the contract and the circumstances in which these would be payable;

    [Note: paragraph 3.38c of DMG]

  7. (7)

    where the firm bases its fees or charges on some percentage or an hourly rate or some other formula, an explanation of how the fees or charges are calculated;

    [Note: paragraph 3.9c of DMG]

  8. (8)

    the elements of the service that the fees cover;

    [Note: paragraph 3.38c of DMG]

  9. (9)

    the circumstances in which a customer may terminate the contract and receive a refund in accordance with relevant law and any fees or charges the customer may be required to pay in that case;

    [Note: paragraph 3.40d of DMG]

  10. (10)

    the consequences on the customer's credit rating, including how long the matter will show on the customer's credit file and that the customer may not be able to obtain credit or other financial services in the future;

    [Note: paragraph 3.38e of DMG]

  11. (11)

    whether a right to cancel applies and, if so, the period and any conditions for exercising the right to cancel the contract and any amount the customer may be required to pay;

    [Note: paragraph 3.38h of DMG]

  12. (12)

    how payments will be allocated to lenders and when payments will be made; and

    [Note: paragraph 3.38k of DMG]

  13. (13)

    the period of time between payments being received from the customer and payments being made to lenders, including the date when the first payment will be made to lenders.

    [Note: paragraph 3.38l of DMG]

  14. (14)

    4an explanation that compensation might be available from the compensation scheme if there is a shortfall in client money held by the firm for that customer.

[Note: paragraphs 3.33, 3.35 and 3.38 of DMG]

CONC 8.3.2RRP

A firm must ensure that:

  1. (1)

    all advice given and action taken by the firm or its agent or its appointed representative:

    1. (a)

      has regard to the best interests of the customer;

    2. (b)

      is appropriate to the individual circumstances of the customer; and

    3. (c)

      is based on a sufficiently full assessment of the financial circumstances of the customer;

    [Note: paragraph 2.6a of DMG]

  2. (2)

    customers receive sufficient information about the available options identified as suitable for the customers' needs; and

    [Note: paragraph 2.6b of DMG]

  3. (3)

    it explains the reasons why the firm considers the available options suitable and other options unsuitable.

    [Note: paragraph 2.6b of DMG]

CONC 8.3.2AGRP
CONC 8.3.3GRP

The individual circumstances of the customer include, for example, the customer's financial position, the country in the UK to whose laws and procedures the customer and the lender in question are subject, and the level of understanding of the customer.

[Note: paragraph 2.6c of DMG]

CONC 8.3.4RRP

A firm must ensure that advice provided to a customer, whether before the firm has entered into contract with the customer or after, is provided in a durable medium and:

  1. (1)

    makes clear which debts will be included in any debt solution and which debts will be excluded from any debt solution;

    [Note: paragraph 3.38j of DMG]

  2. (2)

    makes clear the actual or potential advantages, disadvantages, costs and risks of each option available to the customer, with any conditions that apply for entry into each option and which debts may be covered by each option;

    [Note: paragraphs 3.23a and 3.38b of DMG]

  3. (3)

    warns the customer:

    1. (a)

      of the actual or potential consequences of failing to continue to pay taxes, fines, child support payments and debts which could result in loss of access to essential goods or services or repossession of, or eviction from, the customer's home;

      [Note: paragraph 3.38m of DMG]

    2. (b)

      of the actual or potential consequences of not continuing to make repayments under credit agreements or consumer hire agreements;

      [Note: paragraph 3.26k of DMG]

    3. (c)

      of the actual or potential consequences of ignoring correspondence or other contact from lenders and those acting on behalf of lenders;

      [Note: paragraph 3.38n of DMG]

    4. (d)

      that action to recover debts may be commenced, which may involve further cost to the customer; and

      [Note: paragraph 3.38q of DMG]

    5. (e)

      that by entering into a debt management plan or another non-statutory repayment plan there is no guarantee that any current recovery or legal action will be suspended or withdrawn;

      [Note: paragraph 3.38r of DMG]

  4. (4)

    where relevant to the debt solution, makes clear the risks, including the following risks:

    1. (a)

      if the arrangement or deed fails, the risk of bankruptcy;

    2. (b)

      homeowners may need to release equity from the value of their homes to pay off debts; and that a remortgage may attract higher interest rates or that if no remortgage is available, an individual voluntary arrangement may be extended for 12 months;

    3. (c)

      there are restrictions on the expenditure of a person who enters into an individual voluntary arrangement or protected trust deed;

    4. (d)

      the customer's lenders may not approve the individual voluntary arrangement or protected trust deed; and

    5. (e)

      only unsecured debts included within the individual voluntary arrangement or protected trust deed may be discharged at the end of the period and unsecured debts not included remain outstanding;

    [Note: paragraph 3.38s of DMG]

  5. (5)

    takes proper account of the individual needs of, and any requests made by, a customer; and

    [Note: paragraph 3.23f of DMG]

  6. (6)

    where relevant, explains the nature of an insolvency procedure and the role of the firm.

    [Note: paragraph 3.23o of DMG]

[Note: paragraphs 3.23 and 3.38 of DMG]

CONC 8.3.4ARRP
  1. (1)

    2If a firm has not entered into a contract with a customer, and is satisfied on reasonable grounds that it is unlikely to do so, CONC 8.3.4R applies in relation to that customer as if the words “is provided in a durable medium and” were omitted.

  2. (2)

    The firm must keep a record of the grounds in (1).

CONC 8.3.5GRP

The information required by CONC 8.3.4 R should be provided leaving sufficient time for the customer (taking into account the complexity of the information and the customer's financial position) to consider it before having to make a decision on the appropriate course of action.

CONC 8.3.6GRP

A firm should not unfairly incentivise debt advisers (whether employees, agents or appointed representatives of the firm) to the extent that an incentive might lead the firm not to comply with CONC 8.3.2 R.

[Note: paragraph 3.22 (box) of DMG]

CONC 8.3.6AGRP
  1. (1)

    2Firms must provide advice in a durable medium, unless CONC 8.3.4AR applies. Where questions over the application of that exemption may arise, for example, in relation to advice given to a customer at an initial meeting or telephone call, the following considerations may be relevant:

    1. (a)

      if a firm never charges for advice and never enters into contracts with customers for debt solutions, CONC 8.3.4AR may remove the requirement to provide advice to the customer in a durable medium; and

    2. (b)

      if a firm enters into contracts with customers (in relation to advice, to a debt solution, or to some other matter), it will need to consider, at the early stages of contact with a customer, whether a contract with that customer may follow. A firm is only likely to able to satisfy itself on that point once discussions with a customer have advanced to a stage where it is reasonable to conclude that it is more likely than not that the firm will not enter into a contract with the customer. The firm should keep a record of its reasons for being satisfied on the point.

  2. (2)

    Where the exemption in CONC 8.3.4AR applies, the firm should consider whether it may nevertheless be appropriate to comply with CONC 8.3.4R in certain cases, for example where complex advice is given.

CONC 8.3.7RRP

A firm must:

  1. (1)

    provide the customer with a source of impartial information on the range of debt solutions available to the customer in the relevant country of the UK;

    [Note: paragraph 3.23b of DMG]

  2. (2)

    before giving any advice or any recommendation on a particular course of action in relation to the customer's debts, carry out a reasonable and reliable assessment of:

    1. (a)

      the customer's financial position (including the customer's income, capital and expenditure);

    2. (b)

      the customer's personal circumstances (including the reasons for the financial difficulty, whether it is temporary or longer term and whether the customer has entered into a debt solution previously and, if it failed, the reason for its failure); and

    3. (c)

      any other relevant factors (including any known or reasonably foreseeable changes in the customer's circumstances such as a change in employment status);

      [Note: paragraph 3.23c of DMG]

  3. (3)

    refer a customer to an appropriate not-for-profit debt advice body in circumstances where the customer:

    1. (a)

      has problems related to debt requiring immediate attention with which the firm is unable or unwilling to assist the customer; or

      [Note: paragraph 3.23gi of DMG]

    2. (b)

      does not have enough disposable income to pay the firm's fees;

      [Note: paragraph 3.23gii of DMG]

  4. (4)

    refer a customer to, or provide contact details for, another debt advice provider in circumstances where the firm is unable to provide appropriate advice or provide an appropriate debt solution for the customer; and

    [Note: paragraph 3.23h of DMG]

  5. (5)

    seek to ensure that a customer understands the options available and the implications and consequences for the customer of the firm's recommended course of action.

    [Note: paragraph 3.23i of DMG]

CONC 8.3.8GRP
  1. (1)

    The information and advice referred to in CONC 8.3 should be provided in a manner which is clear fair and not misleading to comply with Principle 7 and CONC 3.3.1 R, and should be in plain and intelligible language in accordance with CONC 3.3.2 R. A firm should encourage a customer to read the information and allow sufficient time between providing the information and entering into the contract to enable the customer to seek independent advice if so desired.

    [Note: paragraphs 3.21, 3.35 and 3.36 of DMG]

  2. (2)

    The firm's services referred to in CONC 8.3 include any debt solution the firm offers to a customer. Therefore, in setting out fees or charges for a firm's services, the fees and charges the firm charges in relation to a debt solution should be included.

  3. (3)

    The serious problems related to debt in CONC 8.3.7 R are likely to include, where non-payment of a debt may result in the loss of a customer's home or loss of access to essential goods or services and, in particular, where legal action is threatened or legal action is taken in relation to debts which may have that effect.

    [Note: paragraph 3.23gi of DMG]

  4. (4)

    A not-for-profit debt advice body should refer a customer to another not-for-profit debt advice body under CONC 8.3.7R (3) where, for example, it is unable to assist a customer.

  5. (5)

    An appropriate not-for-profit debt advice body would be one that provides the most appropriate debt solution given the customer's financial circumstances.

Prohibition on debt packager remuneration from debt solution providers

Scope

CONC 8.3.9R
  1. (1)

    5CONC 8.3.11R to CONC 8.3.15R:

    1. (a)

      apply to a firm with respect to debt counselling where the firm does not itself provide debt solutions; and

    2. (b)

      do not apply to a firm that is a not-for-profit debt advice body.

  2. (2)

    A firm is treated as not itself providing debt solutions for the purposes of CONC 8.3.9R(1)(a) where the firm:

    1. (a)

      provides debt solutions on a single or occasional basis; and/or

    2. (b)

      receives only an insignificant amount of its total annual revenue from providing debt solutions.

Context, purpose and anti-avoidance

CONC 8.3.10G
  1. (1)

    5Firms are reminded that when referring customers to debt solution providers, or carrying on related services, a firm must comply with its obligations under:

    1. (a)

      Principle 12 (Consumer Duty) to act to deliver good outcomes for retail customers and/or Principle 6 (Customers’ interests) to pay due regard to the interests of its customers and treat them fairly; and

    2. (b)

      CONC 8.3.2R(1) to ensure that all advice given and action taken by the firm, its agent or its appointed representative:

      1. (i)

        has regard to the best interests of the customer;

      2. (ii)

        is appropriate to the individual circumstances of the customer; and

      3. (iii)

        is based on a sufficiently full assessment of the financial circumstances of the customer.

    3. (2)

      The purpose of the prohibition in CONC 8.3.11R is to remove the conflict of interest between a debt packager’s obligations under CONC, including those referred to in CONC 8.3.10G(1), and the financial incentive to act in a way which generates revenue in the form of referral fees from debt solution providers.

    4. (3)

      The effect of CONC 8.3.9R(2) is that firms will not be able to avoid the prohibition in CONC 8.3.11R by starting to provide a small number of debt solutions for that purpose.

    5. (4)

      For the purposes of CONC 8.3.9R(2)(b), the amount of total annual revenue received from providing debt solutions is unlikely to be considered significant if an undue risk of non-compliant debt advice arising out of a conflict of interest of the kind described in CONC 8.3.10G(2) continues to exist.

    6. (5)

      For the purposes of CONC 8.3.10G(1)(a), during the period to which CONC TP 8(6) to (7) applies, the FCA considers it unlikely that an increase in either the referral of customers to debt solution providers or carrying on related services, would be in accordance with Principle 6 or Principle 12.

Prohibition

CONC 8.3.11R
  1. (1)

    5A firm must not (and must take all reasonable steps to ensure that none of its associates or its appointed representatives):

    1. (a)

      enter into an agreement to receive;

    2. (b)

      solicit or accept; or

    3. (c)

      seek to exercise, enforce or rely on rights or obligations under an agreement to receive,

    any commission, fee or any other financial consideration, directly or indirectly, from a debt solution provider in connection with the firm referring customers to a debt solution provider, or any other related services, except as provided in CONC 8.3.14R.

  2. (2)

    CONC 8.3.11(1)(b) and (c) do not apply where the firm has an accrued contractual right to payment for the referral, or related services, in relation to a customer prior to the coming into force of CONC 8.3.11R(1).

CONC 8.3.12R

5‘Related service(s)’ for the purposes of CONC 8.3.9R to CONC 8.3.11R includes:

  1. (1)

    recommending a debt solution provider;

  2. (2)

    providing debt counselling services to customers prior to those customers being referred to a debt solution provider or entering into a debt solution; and

  3. (3)

    providing debt counselling services to customers who have been referred to the firm by a debt solution provider.

CONC 8.3.13R

5Debt solution provider(s)’ for the purposes of CONC 8.3.10G to CONC 8.3.12R includes such providers’ associates and appointed representatives.

CONC 8.3.14R

5CONC 8.3.11R does not apply to payments made:

  1. (1)

    pursuant to an enactment;

  2. (2)

    in relation to the administration by a ‘money adviser’ approved under The Debt Arrangement Scheme (Scotland) Regulations 2011 of a customer’s application for a Debt Arrangement Scheme under those Regulations; or

  3. (3)

    by a person employed as an officer of:

    1. (a)

      (in relation to England and Wales) the Insolvency Service;

    2. (b)

      (in relation to Scotland) the Accountant in Bankruptcy; or

    3. (c)

      (in relation to Northern Ireland) the Insolvency Service.

Record keeping

CONC 8.3.15G

5Firms are reminded of their obligations in SYSC 9.1.1R to keep orderly records, which must be sufficient to enable the FCA to monitor the firm’s compliance with the requirements of the regulatory system.

Application of the prohibition to appointed representatives

CONC 8.3.16R

5Principals which have an appointed representative to whom CONC 8.3.9R(1) would apply if the appointed representative were an authorised person must take all reasonable steps to ensure that such an appointed representative complies with CONC 8.3.11R as if the references in that rule to ‘firm’ applied to such an appointed representative.

CONC 8.3.17G

5The purpose of CONC 8.3.16R is to prevent a debt packager firm from becoming an appointed representative in order to avoid CONC 8.3.11R applying to it and continuing to be conflicted by the financial incentive to act in a way which generates revenue from debt solution providers.