Nazeer Chowdhury summarises recent changes in the consumer credit regime

1. THE CONSUMER CREDIT SOURCEBOOK
Nazeer Chowdhury

2. RADICAL REVISION: THE CONSUMER
CREDIT SOURCEBOOK
• The Consumer Credit Act 2006;
• The Consumer Credit Directive; and
• CONC

3. WHERE TO BEGIN?
Financial Services and Markets Act
2000 (Regulated Activities) Order 2001
(SI 2001/544)

4. TABLE OF DESTINATIONS
CCA
Provision
FSMA
RAO
Summary/Comment
s.189(1) 60L(1) “Individual” has become “relevant recipient
of credit”
8(1) 60B(3) The definition of credit agreement has not
changed
9(1) 60L(1) Definition of credit
9(3) 60L(8) Hire-purchase agreement to be treated as
fixed sum credit under FSMA
10 60L(1) Running-account credit and fixed-sum credit
11 60L(1)
and (2)
Restricted-use credit and unrestricted-use
credit
12 60L(1) “debtor-creditor-supplier” is now “borrower-
lender-supplier”
13 60L(1) “debtor-creditor” is now “borrower-lender”
14 - “credit-token” arrangements not carried
forward: not relevant to the FSMA legislation
15 60N Consumer hire agreements

5. TABLE OF DESTINATIONS
CCA
Provision
FSMA
RAO
Summary/Comment
16(1) to (4) 60E(1) to
(4) and (7)
Exempt agreements where lender is
specified by FCA
16(5)(a) 60F Exemption by reference to number of
payments
16(5)(b) 60G Exemption by reference to the total charge
for credit
16(5)(c) 60C(8) to
(10)
Exemption by reference to a country outside
the UK
16(6) 60P Exemption for essential services
16(6A), (6B) 60E(5)
and (7)
Exemption for housing authorities
16(6C) to
(6E)
60C(2) Exemption for regulated mortgage contracts
and home purchase plans
16A 60H and
60Q
FCA now deals with the declaration and
statement for high net worth individuals
16B 60C(3) to
(7)
FCA also deals with exemption for
businesses
16C 60D Exemption relating to investment properties

6. EXAMPLE: BUSINESS EXEMPTION
• Section 16B has been swept away
• Replaced by 60C of the RAO

7. 60C OF THE RAO
(3) A credit agreement is an exempt agreement if—
(a) the lender provides the borrower with credit exceeding
£25,000, and
(b) the agreement is entered into by the borrower wholly or
predominantly for the purposes of a business carried on, or
intended to be carried on, by the borrower.
(4) A credit agreement is an exempt agreement if—
(a) the lender provides the borrower with credit of £25,000 or less,
(b) the agreement is entered into by the borrower wholly for the
purposes of a business carried on, or intended to be carried on,
by the borrower, and
(c) the agreement is a green deal plan (within the meaning of
section 1 of the Energy Act 2011).

8. SECTION 60C OF THE RAO
(5) For the purposes of paragraph (3), if an agreement includes a declaration which—
(a) is made by the borrower,
(b) provides that the agreement is entered into by the borrower wholly or predominantly for
the purposes of a business carried on, or intended to be carried on, by the borrower, and
(c) complies with rules made by the FCA for the purpose of this article,
the agreement is to be presumed to have been entered into by the borrower wholly or
predominantly for the purposes specified in sub-paragraph (b) unless paragraph (6) applies.
(6) This paragraph applies if, when the agreement is entered into—
(a) the lender (or, if there is more than one lender, any of the lenders), or
(b) any person who has acted on behalf of the lender (or, if there is more than one lender,
any of the lenders) in connection with the entering into of the agreement,
knows or has reasonable cause to suspect that the agreement is not entered into by the
borrower wholly or predominantly for the purposes of a business carried on, or intended to be
carried on, by the borrower.
(7) Paragraphs (5) and (6) also apply for the purposes of paragraph (4) but with the omission
of the words “or predominantly”.

9. AGREEMENTS FOR BUSINESS
PURPOSES UNDER THE RAO
• A credit agreement is exempt if the lender provides the borrower with
credit exceeding £25,000 provided that the agreement is entered
into by the borrower wholly or predominantly for the purposes of a
business carried on, or intended to be carried on, by him (s 60C(3)
and (4) of RAO).
• A credit agreement is exempt if the lender provides the borrower with
credit of £25,000 or less, the agreement is entered into by the
borrower wholly for the purposes of a business carried on, or intended
to be carried on, by the borrower, and the agreement is a green deal
plan (within the meaning of section 1 of the Energy Act 2011) (s
60C(4) of RAO).
• An agreement is presumed to be wholly or predominantly for business
purposes if it includes a declaration to that effect by the borrower, in
a prescribed form, unless the lender knows or has reasonable cause
to suspect that this is not the case (s 60C(5) of RAO).

10. WHAT ELSE HAS BEEN CHANGED BY THE
RAO AND WHERE ARE THEY IN CONC?
CCA Provisions repealed CONC
43-47 on advertising CONC 3 Financial promotions
and communications with
customers
51 Prohibition of unsolicited credit
tokens
CONC 2.9 Prohibition of
unsolicited credit tokens
51A and 51B restrictions on
provision of credit card cheques
CONC 2.3 Conduct of business:
lenders and restrictions on
provision of credit card cheques
52(1) and 152 on quotations CONC 4 Pre-Contractual
requirements, particularly CONC
4.1
55A on pre-contractual
explanations
CONC 4 Pre-Contractual
requirements, particularly CONC
4.2-4.3
55B on assessment of
creditworthiness
CONC 5 Responsible lending

11. WHAT ELSE HAS BEEN CHANGED BY THE
RAO AND WHERE ARE THEY IN CONC?
CCA Provisions repealed CONC
55C(5), 60(6) and 75A(7) on
declarations for business
purposes
CONC App 1.4.5 and CONC App
1.4.8 (see also RAO 60C (3) to
(7))
81 on appropriation of payments CONC 6.4 Appropriation of
Payments
82A on assignment of rights CONC 6.5 Assignment of rights
93 on the meaning of total charge
for credit
CONC App 1 Total charge for
credit rules
160A relating to credit
intermediaries
CONC 4.4 Pre-Contractual
requirements: credit brokers and
CONC 3.7 Financial Promotions
and Communications: Credit
Brokers

12. • The Consumer Credit(Conduct of Business) (Credit
References) Regulations 1977,SI 1977/330;
• The Advertisements Regulations, SI 199/2725, SI
2004/1484 and SI 2010/1970;
• The Total Charge for Credit; SI 1980/51 and SI
2010/1011.
• The Consumer Credit (Exempt Agreements) Order, SI
SI 2007/1168 and SI 1989/869.
WHAT REGULATIONS OR ORDERS HAVE
BEEN REVOKED?

13. CONTEXT OF THE
SOURCEBOOK
The FCA guidance (1.1.2 and 1.1.3) notes that:
1.1.2 The purpose of CONC is to set out the detailed obligations
that are specific to credit-related regulated activities and
activities connected to those activities carried on by firms. These
build on and add to the high-level obligations, for example, in
PRIN, GEN and SYSC, and the requirements in or under the CCA.
1.1.3 Firms are reminded that other parts of the FCA Handbook
and PRA Handbook also apply to credit-related regulated
activities. For example, the arrangements for supervising firms,
including applicable reporting obligations, are described in the
Supervision manual (SUP) and the detailed requirements for
handling complaints are set out in the Dispute Resolution:
Complaints sourcebook (DISP). The Client Assets sourcebook
(CASS) also contains rules about client money that apply in
certain circumstances.

14. PRINCIPLES FOR BUSINESS
Principle 1 (a firm must conduct its business with integrity);
Principle 2 (a firm must conduct its business with due skill, care and diligence);
Principle 3 (a firm must take reasonable care to organise and control its affairs responsibly
and effectively, with adequate risk management systems);
Principle 6 (a firm must pay due regard to the interests of its customers and treat them fairly);
Principle 7 (a firm must pay due regard to the information needs of its clients, and
communicate information to them in a way which is clear, fair and not misleading);
Principle 9 (a firm must take reasonable care to ensure the suitability of its advice and
discretionary decisions for any customer who is entitled to rely upon its judgment);
Principle 10 (a firm must arrange adequate protection for clients' assets when it is responsible
for them); and
Principle 11 (a firm must deal with its regulators in an open and cooperative way, and must
disclose to the appropriate regulator appropriately anything relating to the firm of which that
regulator would reasonably expect notice).

15. CONTROVENTION OF FSMA
A contravention by an authorised
person of a rule made by the FCA is
actionable at the suit of a private person
who suffers loss as a result of the
contravention, subject to the defences
and other incidents applying to actions
for breach of statutory duty (under
s138D(2) of FSMA)

16. CONC
• CONC 1 Application and purpose and guidance on financial difficulties
• CONC 2 Conduct of business standards: general
• CONC 3 Financial promotions and communications with customers
• CONC 4 Pre-contractual requirements
• CONC 5 Responsible lending
• CONC 6 Post contractual requirements
• CONC 7 Arrears, default and recovery (including repossessions)
• CONC 8 Debt advice
• CONC 9 Credit reference agencies
• CONC 10 Prudential rules for debt management firms
• CONC 11 Cancellation
• CONC 12 Requirements for firms with interim permission for credit-related
regulated activities
• CONC 13 Guidance on the duty to give information under sections 77, 78 and 79
of the Consumer Credit Act 1974
• CONC 14 Requirement in relation to agents
• CONC 15 Second charge lending
• CONC App 1 Total charge for credit rules

17. CONC 5 RESPONSIBLE
LENDING
Section 55B of the CCA stated:
55B(1)Before making a regulated consumer credit agreement, other than an excluded
agreement, the creditor must undertake an assessment of the creditworthiness of the
debtor.
(2)Before significantly increasing—
(a)the amount of credit to be provided under a regulated consumer credit agreement,
other than an excluded agreement, or
(b)a credit limit for running-account credit under a regulated consumer credit
agreement, other than an excluded agreement,
the creditor must undertake an assessment of the debtor's creditworthiness.

18. CONC 5 RESPONSIBLE
LENDING
(3) A creditworthiness assessment must be based on sufficient
information obtained from—
(a) the debtor, where appropriate, and
(b) a credit reference agency, where necessary…
(4) For the purposes of this section an agreement is an excluded
agreement if it is—
(a) an agreement secured on land, or
(b) an agreement under which a person takes an article in
pawn.]

19. CONC 5.2.1 r(3)
Rule (3) A creditworthiness
assessment must be based on
sufficient information obtained
from:
(a) the customer, where
appropriate; and
(b) a credit reference agency,
where necessary.

20. FURTHER DETAIL UNDER
CONC
(1) In making the creditworthiness assessment or the assessment
required by CONC 5.2.2 R (1), a firm should take into account
more than assessing the customer's ability to repay the credit.
(2) The creditworthiness assessment and the assessment required
by CONC 5.2.2 R (1) should include the firm taking reasonable
steps to assess the customer's ability to meet repayments under a
regulated credit agreement in a sustainable manner without the
customer incurring financial difficulties or experiencing significant
adverse consequences.
(3) A firm in making its creditworthiness assessment or the
assessment required by CONC 5.2.2 R (1) may take into account
future increases in income or future decreases in expenditure,
where there is appropriate evidence of the change and the
repayments are expected to be sustainable in the light of the
change.

21. FURTHER DETAIL UNDER
CONC
(4) If a firm takes income or expenditure into account in its creditworthiness
assessment or its assessment required under CONC 5.2.2 R (1):
(a) the firm should take account of actual current income or expenditure and
reasonably expected future income or expenditure (to the extent it is
proportionate to do so) where it is reasonably foreseeable that it will differ from
actual current income or expenditure over the anticipated repayment period of
the agreement;
(b) it is not generally sufficient for a firm to rely solely for its assessment of the
customer's income and expenditure, on a statement of those matters made by
the customer;
(c) its assessment should be based on what the firm knows at the time of the
assessment.
(5) An example of where it may be reasonable to take into account expected
future income would be, in the case of loans to fund the provision of further or
higher education, provided that an appropriate assessment required by this
chapter is carried out and there is an appropriate exercise of forbearance in
respect of initial repayments, for example, deferring or limiting the obligation to
repay until the customer's income has reached a specified level. Any assumptions
regarding future income should be reasonable and capable of substantiation in
the individual case and the products should be designed in a way to minimise
the risks to the customer.

22. FURTHER DETAIL UNDER
CONC
(11) Where a firm requests information from
a customer for its creditworthiness
assessment or its assessment required by
CONC 5.2.2 R (1) and the information
provided by the customer is false and the
firm has no reason to know this is the case,
the firm should not contravene CONC 5.2.1
R or CONC 5.2.2 R.

23. CONCLUSION
–Print off the RAO (as amended)
and CONC.
–Refer back to the handout
setting out the Table of
Destinations

24. Henderson Chambers
2 Harcourt Buildings
Temple
London EC4Y 9DB
Tel: 020 7583 9020
clerks@hendersonchambers.co.uk
www.hendersonchambers.co.uk
©
Nazeer Chowdhury
29th May 2014
Nazeer Chowdhury and Rachel Tandy 2014