PERG 8.17 Financial promotions concerning agreements for qualifying credit

Section 21 applies to financial promotions concerning agreements for qualifying credit. PERG 8.17.1A G to PERG 8.17.18 G has guidance about the treatment of such financial promotions. Section 21 applies not only to financial promotions about regulated mortgage contracts but also to financial promotions about certain other types of credit agreement. This is explained in more detail in PERG 8.17.2 G. to PERG 8.17.3 G.22

Section 21 also applies to financial promotions concerning home reversion plans,3 home purchase plans and regulated sale and rent back agreements3. Guidance on these activities and related financial promotions is given in PERG 14 (Guidance on home reversion, home purchase and regulated sale and rent back3activities).

Rights under an agreement for qualifying credit are a controlled investment. Qualifying credit is defined in paragraph 10 of Schedule 1 to the Financial Promotion Order (Controlled activities) as credit provided pursuant to an agreement under which:

1. (1)

   the lender is a person who carries on the regulated activity of entering into a regulated mortgage contract (whether or not he is an authorised or exempt person under the Act); and

2. (2)

   the obligation of the borrower to repay is secured (in whole or in part) on land.

An agreement for qualifying credit includes the following types of loan in addition to those that would be a regulated mortgage contract, but in each case only if the lender carries on the regulated activity of entering into regulated mortgage contracts:

1. (1)

   loans secured by a second or subsequent charge;

2. (2)

   secured loans for buy-to-let or other purely investment purposes;

3. (3)

   loans secured on land situated outside the United Kingdom;

4. (4)

   loans that include some unsecured credit such as a flexible mortgage that includes an unsecured credit card; and

5. (5)

   commercial mortgages.

There are four controlled activities involving qualifying credit:

1. (1)

   providing qualifying credit;

2. (2)

   arranging qualifying credit;

3. (3)

   advising on qualifying credit; and

4. (4)

   agreeing to carry on any of (1) to (3).

Providing qualifying credit is a controlled activity under paragraph 10 of Schedule 1 to the Financial Promotion Order. In the FCA's view, 'providing' means, in this context, providing as lender; an intermediary does not 'provide' qualifying credit.

Arranging qualifying credit is a controlled activity under paragraph 10A of Schedule 1 to the Financial Promotion Order; that is, making arrangements:

1. (1)

   for another person to enter as borrower into an agreement for qualifying credit; or

2. (2)

   for a borrower under a regulated mortgage contract entered into on or after 31 October 2004 to vary the terms of that contract in such a way as to vary his obligations under that contract.

This means that invitations and inducements relating to the services of mortgage arrangers will potentially be within the scope of section 21 of the Act.

Advising on qualifying credit is8 a controlled activity under paragraph 10B of Schedule 1 to the Financial Promotion Order; that is, advising a person if the advice is:

1. (1)

   given to the person in his capacity as a borrower or potential borrower; and

2. (2)

   advice on the merits of his doing any of the following:

   1. (a)

      entering into an agreement for qualifying credit; or

   2. (b)

      varying the terms of a regulated mortgage contract entered into by him on or after 31 October 2004 in such a way as to vary his obligations under that contract.

This means that invitations and inducements relating to the services of mortgage advisers will potentially be within the scope of Section 21 of the Act.

Agreeing to carry on each of these three controlled activities is also8 a controlled activity under paragraph 11 of Schedule 1 to the Financial Promotion Order.

The exemptions in Part IV of the Financial Promotion Order (Exempt communications: all controlled activities) will apply to financial promotions about qualifying credit . Some of the exemptions in Part VI of the Financial Promotion Order (Exempt communications: certain controlled activities) will also apply. Those of particular note are referred to in PERG 8.17.10 G to PERG 8.17.12 G.

Article 46 (Qualifying credit to bodies corporate) exempts any financial promotion about providing qualifying credit if it is:

1. (1)

   made to or directed at bodies corporate only; or

2. (2)

   accompanied by an indication that the qualifying credit to which it relates is only available to bodies corporate.

Article 28B (Real time communications: introductions) exempts a real time financial promotion that relates to one or more of the controlled activities about regulated mortgage contracts, as well as home reversion plans, home purchase plans and regulated sale and rent back agreements3. The exemption is subject to the following conditions being satisfied:

1. (1)

   the financial promotion must be made for the purpose of, or with a view to, introducing the recipient to a person ('N') who is:

   1. (a)

      an authorised person who carries on the controlled activity to which the communication relates; or

   2. (b)

      an appointed representative, where the controlled activity is also a regulated activity in respect of which the appointed representative is exempt; or

   3. (c)

      an overseas person who carries on the controlled activity to which the communication relates; for this purpose, an 'overseas person' is a person who carries on any of the controlled activities about home finance transactions2 but does not do so, or offer to do so, from a permanent place of business maintained by him in the United Kingdom; and

2. (2)

   the person ('M') communicating the financial promotion:

   1. (a)

      must not receive any money paid by the recipient in connection with any transaction that the recipient enters into with or through N as a result of the introduction, other than money payable to M on M's own account; and

   2. (b)

      before making the introduction, must disclose to the borrower the following information where it applies to M:

      1. (i)

         whether M is a member of the same group as N;

      2. (ii)

         details of any payment which M will receive from N, by way of fee or commission, for introducing the recipient to N; and

      3. (iii)

         an indication of any other reward or advantage arising out of M's introducing to N.

Introducers can check whether a person is an authorised person or an appointed representative by visiting the FCA's register at www.fca.org.uk/firms/systems-reporting/register.If an authorised person has permission to carry on a regulated activity (which can be checked on the FCA's register) it is reasonable, in the FCA's view, to conclude that the authorised person carries on that activity (but not a controlled activity which is not a regulated activity). The FCA would normally expect introducers to request and receive confirmation of other facts necessary to satisfy the condition in PERG 8.17.12G (1), prior to proceeding with an introduction.

In the FCA's view, money payable to an introducer on his own account includes money legitimately due to him for services rendered to the borrower, whether in connection with the introduction or otherwise. It also includes sums payable in connection with transfer of property to an introducer (for example, a housebuilder) by a borrower. For example, article 28B allows a housebuilder to receive the purchase price on a property that he sells to a borrower, whom he previously introduced to an authorised person or appointed representative to help him finance the purchase in return for a fee payable by the borrower, and still take the benefit of the exclusion. This is because the sums that the housebuilder receives in connection with the introduction and the sale of his property to the borrower are both 'payable to him on his own account'. The housebuilder could also receive a commission from the person introduced to.

In the FCA's view, the provision of details of fees or commission referred to in PERG 8.17.12G (2)(b)(ii) does not require an introducer to provide an actual sum to the borrower, where it is not possible to calculate the full amount due prior to the introduction. This may arise in cases where the fee or commission is a percentage of the eventual loan taken out and the amount of the required loan is not known at the time of the introduction. In these cases, it would be sufficient for the introducer to disclose the method of calculation of the fee or commission, for example the percentage of the eventual loan to be made by N.

In the FCA's view, the information condition in PERG 8.17.12G (2)(b)(iii) requires the introducer to indicate to the borrower any other advantages accruing to him as a result of ongoing arrangements with N relating to the introduction of borrowers. This may include, for example, indirect benefits such as office space, travel expenses, subscription fees. This and other relevant information may, where appropriate, be provided on a standard form basis to the borrower. The FCA would normally expect an introducer to keep a written record of disclosures made to the borrower under article 33A of the Regulated Activities Order including those cases where disclosure is made on an oral basis only.

Most credit advertisements are, with various exceptions, regulated under the Consumer Credit Act 1974. However, article 90(3) (Consequential amendments of the Consumer Credit Act 1974) and Article 91(1) (Consequential amendments to subordinate legislation under the Consumer Credit Act 1974) of the Regulated Activities Order disapply the provisions of the Consumer Credit Act 1974 to any financial promotion other than an exempt generic communication. An exempt generic communication is a financial promotion that is exempt under article 17 of the Financial Promotion Order (Generic promotions) (see PERG 8.12.14 G (Generic promotions (article 17))). Hence, an advertisement about credit of any kind will either be regulated under Section 21 of the Act or under the Consumer Credit Act 1974. Such an advertisement will only be subject to regulation under both statues if it is about secured and unsecured lending. Typical examples showing which statute regulates particular types of credit advertisements are given in the table in PERG 8.17.18 G (Table – Guide to the application of the Act and the Consumer Credit Act 1974 to credit advertisements).