If a broker or dealer (“the Broker”) charges a fee directly to the customer, they must comply with section 4.4 of the Consumer Credit sourcebook (referred to as CONC.) contained within the FCA Handbook.
In brief, CONC 4.4 deals with fees. Credit brokers are not permitted to charge customers fees unless they comply with the FCA’s requirements. Credit brokers must ensure that customers are given clear information on what fees are payable as well as when and how the fees will be payable. It is paramount that credit brokers obtain confirmation from the customer that they are aware of those fees too.
The broker fee must also be disclosed to the lender as a broker fee forms part of the total charge for credit and, accordingly, is relevant to the calculation of the APR.
The fee cannot also be shown as part of the credit and must be shown as part of the total charge for credit under the agreement, otherwise the agreement is improperly executed and cannot be enforced without a court order.
Requirements under CONC 4.4
CONC 4.4. requires that;
- the Broker provide the customer with a Credit Broking Information Notice (CBIF) before any request can be made for that fee or payment taken.
- The CBIF must meet the requirements of CONC 4.4.3 and
- the customer must acknowledge receipt of the CBIF in writing and
- confirm that they are aware of its contents.
- The Broker must keep a record of the CBIF and the confirmation.
No payment details can be taken by the broker until the customer confirmation has been received. It will always be difficult to verify that the details have been taken before the confirmation, but if no signed confirmation exists, it is clear that there has been a breach of the rule in CONC 4.4.
Potentially, the finance agreement would be deemed improperly executed and cannot be enforced without a Court Order. Similarly, the Broker’s failure to comply could be deemed to be an aspect of an unfair relationship under the Unfair Relationship Provisions of the Consumer Credit Act, and as part of any remediation exercise the finance company may be required to refund any unlawful fees.
Finance companies should ask the Broker for copies of all relevant CBIFs to verify that the CONC 4.4.3 requirements have been met. This should be verified against details of the dates when payments were taken by the Broker and/or when the customer agreement was signed. It would also be sensible to check the trading agreement with the Broker to seek an indemnity for any remediation which the finance company may be required to pay out.
Jonathan Hall is associate solicitor in the Asset and Consumer Finance team at business law firm DWF