Consumer credit regulation

No application is needed to use the DPB (Consumer Credit) Handbook and no fee is payable. Your firm simply has to:

• be eligible under the Handbook;
• only undertake the ‘credit-related regulated activities’ permitted by the Handbook; and
• undertake those activities in accordance with the Handbook.

Under the Handbook, a firm is eligible if it is:

• audit registered under the Audit Regulations and Guidance; or
• licensed under the DPB (Investment Business) Handbook, or authorised under the ICAEW’s Probate Regulations; or
• a member engaged in public practice as a sole practitioner; or
• a partnership engaged in public practice of which more than 50 per cent or more of the rights to vote on all, or substantially all, matters of substance at meetings of the partnership are held directly by members; or
• a limited liability partnership engaged in public practice of which more than 50 per cent or more of the rights to vote on all, or substantially all, matters of substance at meetings of the partnership are held directly by members; or
• any body corporate (other than a limited liability partnership) engaged in public practice of which:
  • 50 per cent or more of the directors are members
  • more than 50 per cent of the nominal value of the voting shares is held directly by members; and
  • more than 50 per cent or more of the aggregate in nominal value of the voting and non-voting shares is held directly by members.

The consumer credit activities may only be provided in a manner incidental to the activity of the firm generally, and which arises out of, or is complementary to, another professional service, which is not itself a regulated activity, provided to a specific consumer client. There is more information about incidentality in Schedule 2 of the DPB (Consumer Credit) Handbook.

A firm authorised by the FCA cannot use these arrangements. It must hold the relevant FCA permissions to undertake credit-related regulated activities from 1 April 2014.

We are here to help

If you have a question about use of the DPB (Consumer Credit) Handbook, please contact our Advisory Services team.

Consumer credit activities are now known as credit-related regulated activities. They are set out in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO):

• credit broking (article 36A);
• debt adjusting (article 39D(1) and (2));
• debt counselling (article 39E(1) and (2));
• debt collecting (article 39F(1) and (2));
• debt administration (article 39G(1) and (2));
• entering into a regulated credit agreement as lender (article 60B(1);
• exercising, or having the right to exercise, the lender's rights and duties under a regulated credit agreement (article 60B(2));
• entering into a regulated consumer hire agreement as owner (article 60N(1));
• exercising, or having the right to exercise, the owner’s rights and duties under a regulated consumer hire agreement (article 60N(2));
• providing credit information services (article 89A);
• providing credit references (article 89B);
• operating an electronic system in relation to lending (article 36H); and
• agreeing to carry on a regulated activity (article 64) so far as relevant to any of the activities in (i) to (xii).

Only some of these will be allowed to a firm under ICAEW’s Part XX (of the Financial Services and Markets Act 2000) arrangements:

• credit broking;
• debt adjusting;
• debt counselling;
• debt administration;
• entering into a regulated credit agreement as lender;
• providing credit information services; and
• agreeing to carry on a regulated activity so far as relevant to any of the above activities.

A firm is also prohibited from providing debt management plans (see regulation 4.15). 

It is worth remembering that in considering credit-related regulated activities, a client is a ‘consumer’ who is defined as:

• an individual;
• a partnership consisting of two or three persons of which at least one partner is an individual; or
• an unincorporated body that does not consist entirely of bodies corporate and that is not a partnership.

If the client is not a consumer as defined in the DPB (Consumer Credit) Handbook, the activity is not a credit-related regulated activity. Generally, the credit-related regulated activities have to be in respect of a credit agreement or a consumer hire agreement. If this is not the case, the activity is not a credit-related regulated activity.

In the context of credit-related regulated activities, a client is a ‘consumer’ who is defined as:

• an individual;
• a partnership consisting of two or three persons of which at least one partner is an individual; or
• an unincorporated body that does not consist entirely of bodies corporate and that is not a partnership.

If the client is not a consumer as defined in the DPB (Consumer Credit) Handbook, the activity is not a credit-related regulated activity.

There are six categories of consumer credit included in ICAEW’s DPB (Consumer Credit) Handbook: 

• credit brokerage 
• debt adjusting 
• debt counselling 
• debt administration 
• consumer credit 
• credit information services (including credit repair). 

Detailed information is provided below on each of these categories. The number in brackets is the article number in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 of the definitions applicable after 1 April 2014. 

Credit brokerage (36A) 

If you introduce any individual to a third party so they can obtain credit then you will be using this category. This includes where clients need to borrow money to buy goods and services for which they would not otherwise have funds and are introduced to a source of that money. This may be the case, for example, in a hire purchase transaction, such as a car purchase. An introduction does not depend upon the broker forwarding the application to the lender. A recommendation to deal with a particular lender may amount to credit brokerage. 
It is also credit brokerage to introduce people to other credit brokers. 

Debt adjusting (39D) 

You will use this category if you carry out one or more of: 

• negotiate terms with the creditor on behalf of an individual for the discharge of a debt; 
• take over in return for payments by the debtor, his obligation to discharge a debt; or 
• engage in any similar activity concerned with the discharging of a debt. 

If you offer to negotiate with creditors on someone's behalf, you will be using this category. 

Debt counselling (39E) 

Debt counselling is giving advice to a borrower about the liquidation of a debt due under a credit agreement or giving advice to a hirer about the liquidation of a debt due under a consumer hire agreement. ‘Liquidation’ is: 

• paying off the debt in full and in time; 
• agreeing a rescheduling or a temporary halt to paying off the debt; 
• the debtor being released from the debt; or 
• agreeing a reduced repayment amount (including the creditor agreeing to accept token repayments). 

Although providing a debt management plan is a combination of debt counselling and debt adjusting, firms cannot provide debt management plans using ICAEW’s arrangements (see regulation 4.15 of the DPB (Consumer Credit) Handbook). 

Debt administration (39G)

Debt administration is needed if you take steps to: 

• perform duties under a consumer credit agreement or a consumer hire agreement on behalf of a creditor or owner, or  
• exercise or to enforce rights under such an agreement on behalf of a creditor or owner so far as the taking of such steps is not debt-collecting. 

This category may include, for example, some peer-to-peer lending platforms (but see below) and includes activities such as ensuring relevant documentary information and credit agreements comply with, and are completed in accordance with, relevant legal requirements. 

You will not need this category if you are acting in your own interest; for example, administering loans where you are a creditor or owner. 

Consumer credit (60B – entering into a regulated credit agreement) 

This category covers a wide range of activities including the following (non-exhaustive list): 

• hire purchase  
• issuing credit cards  
• budget accounts  
• instalment credit 
• cash loans 
• overdrafts 
• personal loans 
• pawnbroking 
• payday loans 
• bridging loans 
• shared equity loan. 

For firms the relevance of this category is it includes allowing clients to pay their bills by instalments even if no interest is charged. If the instalment arrangement is for four or fewer payments over a 12 month period with no interest or charges except for default charges (agreement entered into before 18 March 2015) or there are 12 payments or less in a 12 month period, with no interest or charges except for default charges (agreement entered into on or since 18 March 2015) this is not consumer credit. For more information about instalment arrangements please refer to the DPB (Consumer Credit) Handbook.

Credit information services (including credit repair) (89A) 

You will use this category if you:  

• obtain information on behalf of an individual about his financial standing (for example credit rating information), including asking a credit reference agency if it holds the information;  
• provide advice to an individual on how to:
  • alter the credit information held; 
  • omit some of the information;
  • restrict the availability of the information; or
  • do any of the above on behalf of an individual. 

You do not need this category to request changes to your own information or if you are simply seeking information about an individual's creditworthiness, on your own behalf, for example a credit check on a new client.

The categories of consumer credit not included in the DPB (Consumer Credit) Handbook are:

• consumer hire
• debt collecting
• credit reference agency
• peer-to-peer lending (this is a new category of consumer credit)

Detailed information is provided below on each of these categories. The number in brackets is the article number in the Regulated Activities Order of the definitions after 1 April 2014.

Consumer hire (60N)

You will need this category to hire, rent out, or lease goods under any regulated agreements, and where the arrangement is capable of lasting for more than three months.
In such cases the ownership of the goods or services being hired does not transfer to the consumer. An example would be a rental package for TV, phone and broadband, but not a hire purchase agreement.

Debt collecting (38F)

You will need this category if you take steps connected with the collecting of debts owed to others under any regulated consumer credit or hire agreements and you will simply be collecting those debts on the third party's behalf.

This category is not needed if you will only collect debts owed to you.

Credit reference agency (89B)

This category will only be relevant to businesses that collect, and then provide others with, information relevant to someone's financial standing, and the information collected has been collected for that purpose. Only those who carry out similar functions to the three largest consumer credit reference agencies in the UK will need this category.

If you simply give a reference at the request of a credit provider (with the client’s permission) this category is not needed.

Peer-to-peer lending (36H)

FCA plans to introduce a new category of credit activity to cover peer-to-peer lending. The actual regulated activity is operating an electronic system in relation to lending. This is the system that matches up potential borrowers with others who have funds available for lending.

There will be occasions when the arrangements a firm makes with clients to pay their professional fees will be a consumer credit activity. Some activities in relation to fees are exempt, some are covered by the DPB (Consumer Credit) regime and some require FCA authorisation. With some careful planning, firms should be able to structure their fee arrangements to minimise regulation.

Allowing your clients to make fee payments by instalment is potentially exempt if treated correctly. Instalment credit agreements entered into on or since 18 March 2015 where there are 12 payments or less in a 12 month period, with no interest or charges (except for default charges), are exempt and are not regulated credit agreements. To avail of this exemption there must be a written agreement (for example via your engagement letter) entered into with your clients since 18 March 2015. Example wording is

‘We offer you the facility to pay your professional fees by [monthly][quarterly] instalments. We do not charge any interest or charges [except for default charges]. As these terms have been agreed after 18 March 2015 this instalment agreement is not a regulated credit agreement.’

You will need to obtain your client’s agreement to this in writing.

Any instalment agreements entered into before 18 March 2015 are only exempt credit agreements where there are 4 payments or less in a 12 month period, with no interest or charges (except for default charges). In other words, this exemption is more limited.

All other instalment arrangements are regulated and will require a firm to comply with the FCA’s Consumer Credit Sourcebook. Regulation 4.12 of the DPB (Consumer Credit) Handbook limits the transactions that a consumer credit firm can enter into as a lender.

• Part 2 of the helpsheet - A guide to credit-related regulated activity, sets out the regulatory implications of the various ways a firm may use to obtain payment of its fees.

First of all, would these potential clients fall within the definition of a consumer client (see FAQ above)? If the client is not a consumer as defined in the DPB (Consumer Credit) Handbook, the activity is not an exempt credit-related regulated activity and the firm doesn’t need to consider consumer credit. Bear in mind that the potential client may change during the consultation. For example, an incorporated business is not a consumer, but if the director also needs some personal advice, he or she is a consumer.

When the potential client is a consumer, the next aspect to consider is incidentality and how that might work in an initial consultation with them. Any exempt credit related regulated activity provided under the DPB (Consumer Credit) Handbook may only be provided in a manner incidental to the activity of the firm generally (see regulation 3.04), and which arises out of, or is complementary to, another professional service, which is not itself a regulated activity, provided to a specific consumer client, as with investment business (see regulation 3.05).

In most cases the initial consultation with a potential client will be a fact find – working out the client’s needs and seeking to determine whether the firm’s offered services meet those needs. Discussions will be at a high level and few if any specifics will be discussed.

If it turns out during that initial consultation that you have provided an exempt credit related regulated activity, that isn’t necessarily a problem, as the exempt credit related regulated activity may be provided as a first service (see regulation 3.05), but that is based on an expectation that the firm will go on to provide subsequent professional services to the client. If it’s clear from the outset that the potential client will not become a client of the firm, then the firm should avoid providing any exempt credit related regulated activities during the initial consultation.

As an example, a firm should take care when it is obvious from the outset that the potential client is hoping to use the initial consultation to obtain debt advice. In such circumstances the firm should consider carefully whether the client will need any additional professional services from the firm and even if they did, whether the client would have the funds to pay for these services. If it looks unlikely that other professional services can be supplied, the firm should only provide information not debt advice as the advice provision would not meet the incidentality test. Giving the potential client some general advice on how to draw up a budget or a cash flow, or helping them draw up a budget or cash flow is not an exempt credit related regulated activity, but if the firm goes on to provide advice and/or recommendations to them about how to deal with their debt, that would be the exempt credit related regulated activity of debt counselling.

No, firms which are FCA authorised cannot use the DPB (Consumer Credit) Handbook. There are therefore three options open to you:

• apply for a variation of your permission to include credit-related regulated activities (but if you have not already done this, you need to cease all credit-related regulated activities until your permission has been varied);
• cease all consumer credit activities, either completely or until a permission variation is granted; or  
• cease FCA authorisation and make use of our DPB (Consumer Credit) Handbook, if your firm is eligible to do so.

To be able to use ICAEW’s arrangements, an insolvency practitioner must take their insolvency licence from ICAEW. This is the case even if the insolvency practitioner is an ICAEW member who takes their insolvency licence from another recognised professional body. For firms to use the DPB (Consumer Credit) Handbook this means that all their insolvency practitioners must be licensed by ICAEW (or CAI or ICAS).

But, the services provided by the insolvency practitioner must also meet the incidentality test (see regulations 3.04 and 3.05). We will be issuing further guidance on incidentality as it applies to insolvency engagements soon.

Also, those using the DPB (Consumer Credit) Handbook are prohibited from providing debt management plans (see regulation 4.15).

There is also a statutory exclusion which can be used by insolvency practitioners. While acting as an insolvency practitioner, the insolvency practitioner is excluded from the need to be FCA authorised in respect of the activities of:

• debt adjusting;
• debt counselling;
• debt collecting;
• debt administration; and
• providing credit information services.

A similar exclusion applies when an insolvency practitioner is acting in ‘reasonable contemplation of appointment’. In this case, the relevant activities are:

• debt adjusting;
• debt counselling; and
• providing credit information services.

The exclusions also apply to those working for the practitioner. The legislation does this by including within the definition of 'acting as an insolvency practitioner' (or acting in ‘reasonable contemplation’ of appointment) the insolvency practitioner’s:

• employer;
• partnership (if the IP is a partner); or
• LLP (if the IP is a member of an LLP).

The use of ‘exclusion’ rather than ‘exemption’ is important. If the insolvency practitioner also undertakes other credit-related regulated activities of a kind that need FCA authorisation, that authorisation would have overridden an exemption because a person cannot be exempt and authorised at the same time. Full FCA regulation would apply.

Even if no authorisation is needed as set out above, the insolvency practitioner’s firm may be carrying out other credit-related regulated activities. In this case, the practitioner should consider if their firm can operate under ICAEW’s arrangements or if it needs to apply for FCA authorisation. 

Much of the Consumer Credit Act 1974 was repealed on 1 April 2014. Amendments made to the Financial Services and Markets Act 2000 (and statutory instruments made under that Act) came into force on that date and are the basis for consumer regulation going forward.

Also on 1 April 2014, the group licence arrangements ceased, as did those for standard Office of Fair Trading (OFT) consumer credit licences.

Responsibility for consumer credit transferred from the OFT to the Financial Conduct Authority (FCA).

ICAEW, ICAS and CAI are Designated Professional Bodies under Part XX of the Financial Services and Markets Act 2000 (the Act). Previously those arrangements only dealt with investment business activities. Following a change of the law on 1 April 2014, credit-related regulated activities are now within the scope of the Act.

Part XX allows the ICAEW, ICAS and CAI to provide arrangements by which firms may take advantage of an exemption from the general prohibition on carrying on activities that are regulated under the Act.

ICAEW initially put in place transitional arrangements while new rules for consumer credit were agreed with the FCA. Our DPB (Consumer Credit) Handbook, which is issued jointly with ICAS and CAI, is effective from 1 April 2016.

ICAEW’s group consumer credit licence was replaced by the consumer credit (transitional arrangements) regulations. These regulations ceased to be in force on 1 April 2016.

The Consumer Credit Act 1974 required those that carried on a consumer credit business (a business providing credit or otherwise being a creditor), a consumer hire business or an ancillary credit business to hold a consumer credit licence from the Office of Fair Trading (OFT). This may not have been necessary if the person carrying on the licensable activity was covered by an appropriate group licence.

What was a group consumer credit licence?

ICAEW’s group consumer credit licence was effective until 1 April 2014.

Group licences were granted by the OFT to allow the members of the group who were defined in the group licence to carry out those credit – and/or ancillary credit – activities specified on the licence, without the need for an individual OFT licence. The key point is that credit activities were not the main business of the members of the group.

The OFT published general and sector-specific guidance which we expected members to ensure they were familiar with, and adhere to. Access the UK Government web archive:

• Consumer credit licensing - General guidance for licensees and applicants on fitness and requirements
• Debt Management Guidance
• Debt Collection Guidance
• Irresponsible Lending Guidance
• Credit brokers and intermediaries

Role and responsibility of a group licence holder

In our role as a group licence holder, ICAEW was required to ensure members of our group who were covered by our group licence were fit to engage in the activities covered by the licence.

We were also required to have:

• the appropriate mechanisms in place for assessing and monitoring the fitness of the members of our group covered by the group licence; and
• to exclude from the group covered by the licence any members who are deemed unfit to be covered by the licence.

• Find out more about ICAEW’s regulatory expertise and history