Consumer Credit Under FCA – A Guide for Credit Unions
Wednesday 10 January 2024
Introduction
Since 2014, the Financial Conduct Authority (FCA) has had responsibility for authorisation and regulation of businesses engaged in consumer credit and related activities.
This guide should help you:
- Understand whether you need to apply for authorisation for consumer credit
- Navigate the application process
Do I need to be approved for consumer credit?
| Activity | Description | Requires authorisation? |
| Borrower-lender agreements | Credit union loans which are ‘borrower-lender’ agreements and do not involve a third party. | No. Credit unions continue to be exempt from consumer credit regulation for the purposes of these agreements. |
| Paying a third-party | Credit union loans where the principal is paid to a third party (such as a vendor of goods or a third party creditor (provided no negotiation is undertaken) on their members behalf but have no other contact with the third party. | No. |
| Credit checks on the credit unions’ own behalf | Credit unions use a CRA to conduct credit checks on their members in order to make a loan. | No. |
| Borrower-lender-supplier agreements | Credit unions provide credit for the purchase of goods from a third party under a pre-agreed arrangement with the third party vendor – such as under the Co-operative Electricals scheme. | Yes. Credit unions need to be authorised for consumer credit and their agreements under these arrangements need to fully comply with consumer credit regulations. |
| Debt adjustment | Credit unions enter into negotiations with creditors on their members’ behalf in order to reduce or liquidate debts (perhaps as part of a debt consolidation loan). This does not include simply paying a third party creditor as part of debt consolidation which comes under the usual exemption. | Yes. |
| Debt counselling | Credit unions give advice to members on liquidating debts. | Yes. |
| Credit information services | Credit unions offer members information on their credit history, or seek to have this altered or adjusted or advising a member on how they might alter or adjust their credit history themselves. | Yes. |
| Debt Collection on credit union’s own behalf | Credit unions recover debt in relation to their lending. | No. |
All of these activities, in addition to requiring authorisation, also require adherence to the relevant regulations set out in the Consumer Credit Sourcebook (CONC).
For credit unions in Scotland: The Consumer Credit Act specifically prevents any ‘summary diligence’ being executed in relation to any regulated agreement under the Act. Therefore, if you register loans with the Book of Session in Scotland for future execution, you cannot do this in relation to loans made within the terms of your Consumer Credit permissions.
How do I get authorised?
Full v. Limited permission
There are two categories for authorisation for consumer credit – full permission and limited permission. Because credit unions’ main business is a regulated activity – i.e. deposit-taking – and because of the nature of the types of activity that credit unions are likely to conduct under consumer credit (as set out above) it is very likely that all credit unions will need to obtain full permission.
Variation of permission
Since credit unions are already regulated by FCA for deposit-taking activity, your application for consumer credit full permission will be conducted through a “Variation of Permission” process which therefore means you will be required to demonstrate less than you would if you were applying for authorisation for the first time. Similarly, because any consumer credit activity you do conduct is likely to be incidental to your main activity, and marginal in terms of the credit unions’ business model, you should also not be required to demonstrate a great deal.
You are advised, however, to begin to complete your application process as soon as you can in order to ensure you are able to provide all the required information before the end of your two-month submission window. All firms are able to begin completing their application now but will not be able to submit until their window opens. Once the application has been submitted, you may need to submit further information as required by FCA.
The FCA has provided a checklist of documents and information you will be required to submit in support of your application. You are advised to consult this list and to read the resources available at the consumer credit section of the FCA website before attempting to complete your application. Particularly useful are the application guidance notes which the FCA has produced and take you step-by-step through the application.
How much will it cost?
ABCUL has been successful in securing a very advantageous fee structure for credit unions in respect of consumer credit. Whereas most firms will have to pay between £5,000 and £10,000 to gain authorisation, credit unions will pay a flat fee of £200 for a new authorisation. For a Variation of Permission – such as adding consumer credit to your existing deposit-taking permission – you should only pay half the full fee, i.e. £100. Furthermore, while other firms will be required to pay annual minimum fees of between £250 and £1000, credit unions are exempt from consumer credit minimum fees. The discounted rate for credit unions is provided for in the FCA Handbook, under FEES 3 Annex 1 – part 1(b)aa.
Credit unions will only be required to pay an ongoing fee for consumer credit where revenue generated by regulated consumer credit activity exceeds £250,000. In addition, credit unions do not have to pay debt advice levies below the lending value of £2 million.
How can ABCUL help?
ABCUL is keen to help you to navigate the authorisation process for consumer credit. If you have any questions or would like assistance, please email members@abcul.org or ring 0161 832 3694.
ABCUL – Last Updated: November 2019