PERG 4.17 Interaction with the Consumer Credit Act

Article 90 of the Regulated Activities Order essentially carves out regulated mortgage contracts from regulation under the Consumer Credit Act 1974 (CCA). Many loans that fall within the regulated mortgage contract definition are already exempt from much of the detail required under the CCA.

Some loans that will fall within the regulated mortgage contract definition are also currently classified as regulated agreements under the CCA. In these cases, the impact of the carve-out in article 90 of the Regulated Activities Order is likely to be more significant. In particular, most of the CCA controls in respect of entering into, operation and termination of agreements will not apply. Article 90 also, however, provides that section 126 of the CCA (Enforcement of land mortgages) and other provisions relating to it, apply to agreements which would otherwise be regulated agreements. In the FSA's view, it follows that section 126 of the CCA and related provisions including sections 129, 130, 131, 135 and 136 (dealing amongst other things with extension of time and protection of property pending proceedings) will apply to these regulated mortgage contracts.

Regulated mortgage contracts that were in place at 31 October 2004 and which are subject to the CCA will remain subject to that regime and will come within the FSA's remit. But there may be instances where a variation of an existing contract amounts to entering into a new regulated mortgage contract (see PERG 4.4.4 G and PERG 4.4.13 G).

Unsecured loans, as well as loans secured on second charges on property, are not subject to the article 90 carve-out. Many of these loans are currently covered by the CCA and the position will not change.

In some cases, lenders may provide a flexible mortgage product comprising both a secured first charge loan and unsecured borrowing, for example credit card facilities. In this example, in addition to considering the need for authorisation, the lender will also require a CCA licence in respect of the unsecured lending, even where the product is sold under a single agreement.

The CCA also regulates persons who carry on certain types of ancillary credit business including "credit brokerage", "debt-adjusting" and "debt-counselling", as defined by section 145 of the CCA. One aspect of the CCA regime is that a licence is required for these activities. Article 20 of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 1) Order 2003 (SI 2003/1475) adds new exceptions to section 145 of the CCA in relation to these activities.

Article 20(2) of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 1) Order 2003 amends section 146 of the CCA (Exceptions from section 145) so that it is not "credit brokerage" for a person to introduce an individual seeking to obtain credit if the introduction is made (a) to an authorised person who has permission to enter as lender into "relevant agreements"; or (b) to a "qualifying broker", with a view to that individual obtaining credit under a "relevant agreement".

Amended section 146 of the CCA defines "relevant agreement" as meaning a consumer credit agreement secured by a land mortgage, where entering into that agreement as lender is a regulated activity. "Qualifying broker" is defined in the same section as meaning a person who may effect introductions of the kind mentioned in PERG 4.17.7 G without contravening the general prohibition under section 19 of the Act. "Credit brokerage" itself includes introducing an individual seeking to obtain credit to finance the acquisition of a dwelling to be occupied by himself or his relatives, to any person carrying on a business in the course of which he provides credit secured on land (for full definition see section 145(2) of the CCA).

In addition to the provisions of the exception under amended section 146 of the CCA, introducers are referred to the guidance in PERG 4.5.10 G dealing with the provisions relating to introducing in the Regulated Activities Order.

Article 20(2) amends section 146 of the CCA by providing that it is not "debt adjusting" to carry on an activity which would otherwise be "debt adjusting" under section 146(5) of the CCA if (a) the debt in question is due under a "relevant agreement"; and (b) that activity constitutes a regulated activity. "Debt adjusting" includes in relation to debts due under consumer credit agreements (a) negotiating with the creditor, on behalf of the debtor, terms for discharge of the debt, or (b) taking over, in return for payments by the debtor, his obligation to discharge a debt, or (c) any similar activity concerned with the liquidation of the debt (see full definition in section 145(5) of the CCA).

In addition to the provisions of the exception under amended section 146 of the CCA, debt adjusters and arrangers are referred to the guidance in PERG 4.5 dealing with the provisions relating to arranging and, in particular, PERG 4.5.1G (1)(b) dealing with varying a regulated mortgage contract.

Article 20(2) amends section 146 CCA by providing that it is not "debt-counselling" for a person to give advice to debtors if (a) the debt in question is due under a "relevant agreement"; and (b) giving that advice constitutes a regulated activity. "Debt-counselling" includes the giving of advice to debtors about the liquidation of debts due under consumer credit agreements (see the full definition in section 145(6) of the CCA).

In addition to the provisions of the exception under amended section 146 of the CCA, debt counsellors and advisers are referred to the guidance in PERG 4.6 dealing with advising on regulated mortgage contracts and, in particular, PERG 4.6 (Definition of 'advising on regulated mortgage contracts') dealing with varying a regulated mortgage contract.

The CCA's licensing regime will still apply to credit brokers, debt adjusters and debt counsellors in respect of non-regulated mortgages and other loans, as well as to authorised persons or appointed representatives who carry on ancillary credit business in addition to regulated activities. Accordingly, mortgage intermediaries requiring authorisation may also need to retain their CCA licences.

Articles 90 and 91 of the Regulated Activities Order include provisions that have the effect of removing from CCA regulation financial promotions about qualifying credit. Such promotions will not therefore be subject to Part IV of the CCA or regulations made under that Part.

For more detailed guidance concerning the interface between the financial promotion regime and the regulation of credit advertisements under the CCA, see PERG 8.17.17 G.