Fair Trading

Even if you do not offer credit yourself, you may want to introduce your customers to a third party to enable your customers to access funds to purchase your goods and services or hire your goods. If you choose to do this, you may be deemed to be a credit broker. If you are a credit broker, there is important information you need to know about your obligations, including the fees you may charge your customers. This guidance seeks to explain those rules contained within the Consumer Credit Act 1974 (as updated by the Consumer Credit Act 2006 and associated regulations) including details of specific charges you can make and when they are applicable.

To act as a credit broker, you must have a consumer credit licence for your business.

In the guide
What is a credit broker?
When do the rules apply?
Charging for your services
What is a credit intermediary?
Do you advertise credit?

What is a credit broker?
A credit broker introduces individuals - your customers who are seeking credit or goods on hire - to businesses that may provide this credit, or other credit brokers.

An introduction may include forwarding an application to a creditor, but does not depend on it. A recommendation to deal with a particular creditor or broker could amount to credit brokerage. For example, you may be a retailer who asks a finance company to finance a purchase made by one of your customers, or you may recommend a particular finance company to your customers.

Credit brokerage also includes introducing individuals to other credit brokers.

To act as a credit broker, you must have a consumer credit licence for your business (the application form is from the Office of Fair Trading). If you do not have a consumer credit license and introduce your customer to credit facilities you could become subject to enforcement action and financial penalties.

If your business encompasses first charge mortgages, or certain types of insurance, you may need to gain permission or an exemption from the Financial Services Authority. Check for details on the 'Do I need to be authorised?' page of its website.

Credit brokers introducing clients to lenders who are regulated by the Financial Services Authority do not have to comply with these rules or obtain a consumer credit licence. However, many credit brokers will deal with a range of lenders, including some providing second mortgages only, who will not fall within the FSA regime. Brokers will, therefore, have to check whether they have made an introduction to an FSA authorised lender or not before deciding whether they must comply with the rules.

See also the OFT document 'Do you need a credit licence?'.

When do the rules apply?
The legislation controls introductions to virtually all sources of credit or hire. It also applies to certain mortgages (of any amount) for the acquisition or provision of a dwelling for occupation by the prospective debtor or a relative of his/hers.

The controls apply to agreements between traders and individuals, sole traders, partnerships and unincorporated associations, but not agreements made between traders and corporate bodies such as limited companies or limited liability partnerships.

Charging for your services
You can charge your customers an upfront fee for your services as a credit broker. However, if the customer does not enter into an agreement for the credit or hire within six months of your introduction you cannot retain more than £5 of this fee (it does not matter why the customer does not go ahead with the agreement, even if it is just a change of mind.)

The customer is entitled to ask for a refund of the excess if he has already paid more than £5, and can take legal action to recover this if you refuse. In addition failure to refund fees may put you at risk of losing your consumer credit licence or action being taken against you under the Enterprise Act 2002 in order to ensure compliance. You may also be deemed to be in breach of the Consumer Protection from Unfair Trading Regulations 2008.

You must not give your customers any indication that your fees are non-returnable including putting any clauses in your contract to this effect. The customer has a statutory right to pay no more than £5 in credit brokerage fees if they do not enter into a credit agreement. You cannot restrict this right.

If it is apparent that there is no prospect that a credit agreement will result from your introduction you should refund the customer's money as soon as is reasonably practicable. You should not withhold this money for the full six months in these circumstances. If you attempt to evade this legislation, the Office of Fair Trading may view it as an unfair business practice and review your fitness to hold a consumer credit licence. The removal of your credit licence would leave you unable to make any further introductions on behalf of your customers.

The law currently applies equally to your dealings with business customers (other than commercial mortgages, as mentioned above), unless they are limited companies or limited liability partnerships.

What is a credit intermediary?
A credit intermediary is a person or business who is not acting as a creditor and who, in the course of his business receives a fee for presenting or offering credit agreements to consumers or assists customers in completing their paperwork in respect of credit agreements. A consumer credit licence is not required in order to be a credit intermediary.

You will not be a credit intermediary if you do no more than provide information or access to information about possible credit agreements to potential consumers.

There are specific rules relating to information to be given to customers by credit intermediaries, particularly in respect of openness and transparency about fees. Further guidance on brokerage fees can be found on the OFT website.

In practice, many credit brokers are likely to be credit intermediaries and vice versa, so anyone engaging in credit brokerage or carrying out the activities of a credit intermediary should have regard to the guidance found in the OFT document 'Do you need a credit licence?'.

Do you advertise credit?
Adverts offering credit or hire facilities to consumers are controlled by the Consumer Credit (Advertisements) Regulations 2010. Further information about credit advertising can be found on the OFT website. If you quote brokerage fees in an advert, specific additional information must be given. The rules are quite complex and you should seek advice/check the legislation and guidance. The Regulations do not apply to an advertisement for a regulated mortgage contract within the meaning of the Financial Services and Markets Act 2000. You should also be aware of the Business Protection from Misleading Marketing Regulations 2008, which make further provisions that must be taken into account.

Please note
This leaflet is not an authoritative interpretation of the law and is intended only for guidance. Any legislation referred to, while still current, may have been amended from the form in which it was originally enacted. Please contact us for further information.

Relevant legislation
Consumer Credit Act 1974
Financial Services and Markets Act 2000
Enterprise Act 2002
Consumer Credit (Advertisements) Regulations 2004
Consumer Credit Act 2006
Business Protection from Misleading Marketing Regulations 2008
Consumer Protection from Unfair Trading Regulations 2008
Consumer Credit (Advertisements) Regulations 2010

Last reviewed/updated: July 2012