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Article 21 of the Consumer Credit
Directive 2008/48/EC (CCD) places new obligations on “credit
intermediaries” acting as agent for the lender for consumer credit
business.
Previously, English law has talked about
“credit brokers” rather than “credit intermediaries”, with section
56 of the Consumer Credit Act 1974 (CCA) creating a
concept of statutory agency in certain circumstances.
These new obligations are to be adopted by 11 June
2010 and the Department for Business, Innovation and Skills has
prepared draft regulations for this purpose.
In part, the draft regulations codify existing best
practice already in effect in the consumer finance industry.
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By GlobalDataThe regulations will introduce new Sections 54A to
54D into the CCA. Section 54A creates a new definition of a credit
intermediary as:
a person, not acting as a creditor, who for
consideration that is or includes a money consideration and in the
course of business:
(a) presents or offers to a debtor a
prospective regulated consumer credit agreement;
(b) assists a debtor by undertaking other
preparatory work in respect of an agreement referred to in (a);
or
(c) enters into a regulated consumer credit
agreement with a debtor on behalf of a creditor.
The definition is wide and catches those who effect
introductions but those who also undertake “preparatory work” for a
fee in respect of prospective regulated agreements. It is not clear
what “preparatory work” is intended to mean but is likely to
include submitting a proposal for approval.
Where a credit intermediary is acting, they
must:
• Disclose the extent of their powers and whether
they work for the creditor or independently, in advertisements or
documentation intended for debtors;
• Agree with the debtor and disclose in writing any
fee payable by the debtor to the credit intermediary for his
services. This must be done before concluding an agreement with the
debtor and before the debtor enters into the credit agreement;
and
• Communicate to the creditor the fee payable by
the debtor for the purposes of calculating the APR.
Failure to comply with these requirements will be a
criminal offence punishable by a fine of up to £2,500 and possible
imprisonment for second or subsequent offences.
Finance companies and those who act as credit
intermediaries should ensure they are aware of the duties imposed
by the CCD and should consider whether any training is needed to
deal with the disclosure requirements.
Intermediaries must ensure documentation and
advertisements intended for debtors disclose their powers and ties
with creditors. The fee payable must also be disclosed in writing
before the credit agreement is made.
Finance companies should also consider whether
amendments need to be made to existing contracts with agents in
light of the new definition and disclosure obligations, to ensure
that parties are adequately protected.
Charlotte Harrison, assistant
solicitor, and Jo Owens, associate, HBJ Gateley Wareing
