The process used is sequenced questions. These questions extract information from a person with a view to helping them select a solution. In this case we are talking about debt counselling or liquidating debts under a credit or consumer hire agreement. The process of going through the questions narrows down the client’s options.

Decision trees are prepared in advance of their use so need to be approved by the firm. This throws up many different shades of advice, of which some are certainly regulated. Are you assisting the customer to make their own choices? And can you avoid judgement on suitability of final action? If the answer is yes then the decision tree is not advice. Variations in the theme above are too many to count.

The FCA split them into two broad types

The first type involves Q&A on fact

This is general fact finding. It could mean the size and type of debt. The questions identify several solutions to the problem. These must be presented in a balanced and neutral way without recommending one over the other. That is non regulated. The provision of the information is not regulated but the answers provided may be regulated. So if the decision tree makes any value judgement of the merits of one action over the other then this is advice and this is regulated.

The second type involves Q&A on opinion judgement and values

This will involve advice not just information provision.

Here are some examples. The decision tree may not lead to any particular recommended action. That makes it generic advice and that makes it non regulated. The FCA have stated that they believe this to be a rare example. If the decision tree leads to a solution or recommendation then that is regulated advice. You could almost say that you need to be regulated only if the decision tree is actually going to be helpful!

The FCA have repeatedly said that you must look at the who process and not just parts of it to establish the facts.

Relevant points include these

• What the terms of business say
• The context of the process
• The role played by the "guide" who has the decision tree or scripted questions in their hand.
• The number and precision of different solutions presented.
• The amount of help the guide provides to actually carry out the solution later.
• The relationship between the guide and the client.
• The FCA have said that it little matters the medium used to give the advice. Interactive software is the same as face to face in this respect. However if the advice is to the mass market through a newspaper or website then it is generic advice and not regulated.

Exemptions – Guidance on FCA Consumer Credit exemptions for IFAs

Do IFAs require consumer credit licences for their usual activities? We say no. Guidance from the Office of Fair Trading (OFT) is far from clear meaning that many advisers currently hold licences for various consumer credit activities purely as a precautionary measure.

We know that APFA are lobbying on our behalf here (send them a donation). However, since the publication of the FCA fees paper it is clear that the cost of applying is going to rocket. For IFAs this means that you cannot buy a licence for ''just in case''. There needs to be clarity. You must be convincing that you need one. If not the FCA may refuse you. And that is a smear on your CV. We assume that IFA’s don’t lend money or collect debt. That means debt consolidation is about the only pinch point between CCL and IFA. It is extremely remote that an investment based IFA will do debt consolidation work.

If you do mortgages then you might consolidate debt. In our experience the majority of pure mortgage brokers do not advise on or arrange consolidating debt. And if you don’t then you won’t need a licence. Do you really want to play around with credit card debt? If the answer is yes, then you must go for it and join the 47 000 others clamoring for a licence.

The £25 000 exemption from regulation for consumer credit

The Consumer credit financial Limit. The Prior to 2006 there was a limit on the level to which Consumer Credit Licences applied. This level is now no longer restricted to £25 000 but is unlimited. The CCA regulates credit and hire facilities to individuals regardless of the amount of credit. Under the 1974 Act only facilities where the amount of credit was £25 000 or less were regulated by the Act. Above that threshold the relevant agreement was outside the ambit of the 1974 Act. One of the reforms of the 2006 Act was to abolish the financial threshold so that all facilities made available to individuals regardless of amount were potentially regulated by the CCA.

Having considered the borrowers who are entitled to the protections of the CCA it is necessary to examine briefly what is meant by the term "credit".

Exemptions from the FCA Consumer Credit - Rules

Some of the FCA rules have been copied here for ease of reference. Of course the actual rules should be checked on their website but this provides the information directly for quick reference purposes.

Exemptions relating to the nature of the agreement

PERG 2.7.19C 8

A credit agreement is an exempt agreement¹² in the following cases:

(1) if it is a regulated mortgage contract or a home purchase plan;

(2) 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;

(3) if:

(a) the lender provides the borrower with credit of £25 000 or less; and

PERG 2.7.19D

If a credit agreement includes a declaration which:

Exemption relating to the purchase of land for non-residential purposes

PERG 2.7.19E

A credit agreement is an exempt agreement12 if at the time it is entered into:

(1) any sums due under it are secured by a legal or equitable mortgage on land; and

(2) less than 40% of the land is used or is intended to be used as or in connection with a dwelling:

(a) by the borrower or a related person of the borrower; or

(b) in the case of credit provided to trustees by an individual who is a beneficiary of the trust or a related person of a beneficiary.

(3) For these purposes a person is related to a borrower or a beneficiary of a trust if they are a spouse or civil partner or a parent brother sister child grandparent or grandchild of the borrower or beneficiary or if their relationship with the borrower or beneficiary has the characteristics of the relationship between husband and wife.

(4) This exemption is intended to mirror the definition of regulated mortgage contract so that buy-to-let loans (that are not secured by a legal mortgage on the borrower''s or a related person''s residence) are not regulated either as regulated mortgage contracts or as regulated credit agreements.

Exemptions relating to the nature of the lender

PERG 2.7.19F

A credit agreement is an exempt agreement12 in the following cases:

(1) if the credit agreement is a relevant credit agreement relating to the purchase of land and the lender is a local authority;

(2) if the credit agreement is a relevant credit agreement relating to the purchase of land specified in CONC App 1.3 and the lender is a person or within a class of persons specified in CONC App 1.3;

(3) if the credit agreement is secured by a legal or equitable mortgage on land that land is used or is intended to be used as or in connection with a dwelling and the lender is a housing authority; or

(4) If the lender is an investment firm or a credit institution and the agreement is entered into for the purpose of allowing the borrower to carry out a transaction relating to one or more financial instruments.

Exemptions relating to number of repayments to be made

PERG 2.7.19G 8

A credit agreement is also an exempt agreement in the following cases:

(1) if (subject to PERG 2.7.19H G):

     (a) the agreement is a borrower-lender-supplier agreement for fixed-sum credit;

     (b) the number of payments to be made by the borrower is not more than four;

     (c) those payments are required to be made within a period of 12 months or less (beginning on the date of the agreement and

     (d) the credit is:

      (i) secured on land; or

      (ii) provided without interest or other charges;

(2) if (subject to PERG 2.7.19H G):

PERG 2.7.19H

The exemptions in PERG 2.7.19G G (1) and PERG 2.7.19G G (2) do not apply to:

Exemptions relating to the total charge for credit

PERG 2.7.19I

A credit agreement is also an exempt agreement12 in the following cases:

High net worth exemption

PERG 2.7.19J

A credit agreement is an exempt agreement12 if:

High net worth exemption

PERG 2.7.19J

A credit agreement is an exempt agreement12 if:

HNW exemptions from the FCA Consumer Credit Rules

A useful exemption category is available to high net worth borrowers or hirers. The FCA say the exemption is available to borrowers or hirers who are natural persons only and so excludes the other categories of "individual".

The exemption is available where:

Of course in practice disputes occur around the question of whether or not the borrower understood what they were signing.

Advisers are well advised to get another professional person to countersign or counter-advise these customers. The level of income and assets required to cause a borrower to qualify as "high net worth" is prescribed along with the form of declaration to be made by the borrower and the form of the certificate to be provided by an accountant.

As with the business purposes exemption it is not sufficient simply to rely on a factual assertion that the relevant borrower or hirer is a high net worth individual. The strict requirements of the FCA must be complied with in order for the exemption to be available.

Exemptions Summary of the FCA Consumer Credit Rules

The exemptions are these in broad terms

• a regulated mortgage contract or regulated home purchase plan
• agreement secured by a land mortgage of a dwelling
• Debtor-creditor-supplier agreement for fixed-sum credit where the credit is provided without interest and without any other charges and where the total number of payments to be made by the debtor does not exceed four and those payments are required to be made within a period not exceeding 12 months beginning with the date of the agreement
• Agreements for business purposes are exempt. However be careful that you both can years later prove that it was so
• Buy to let agreements are exempt from the consumer credit FCA licencing regime
• Share dealing agreements are similarly exempt from the consumer credit FCA licencing regime

The following activities are also exempt.

"There is also an exclusion from debt adjusting debt counselling debt collecting and debt administration for any activity that relates to a regulated mortgage contract or a home purchase plan to the extent that the activity constitutes a regulated activity" from FCA handbook. Essentially this means that chasing other mortgage debt is not consumer credit activity.

Also barristers and solicitors acting in the course of contentious business are excluded if it is incidental to their main activity or if they are representing someone regarding consumer debt.

Approved persons

REAS0NS WHY YOU DONT NEED A LICENCE

Do IFAs require consumer credit licences for their usual activities? We say no. Guidance from the Office of Fair Trading (OFT) is far from clear meaning that many advisers currently hold licences for various consumer credit activities purely as a precautionary measure. We know that APFA are lobbying on our behalf here (send them a donation) However since the publication of the FCA fees paper it is clear that the cost of applying is going to rocket. For IFAs this means that you cannot buy a licence for ''just in case''.

There needs to be clarity. You must be convincing that you need one. If not the FCA may refuse you. And that is a smear on your CV. We assume that IFA’s don’t lend money or collect debt. That means debt consolidation is about the only pinch point between CCL and IFA.

It is extremely remote that an investment based IFA will do debt consolidation work. If you do mortgages then you might consolidate debt. In our experience the majority of pure mortgage brokers do not advise on or arrange consolidating debt. And if you don’t then you won’t need a licence. Do you really want to play around with credit card debt? If the answer is yes then you must go for it and join the 47 000 others clamouring for a licence.

REASONS WHY YOU DO NEED A LICENCE

Even if you advise on pensions only it could be argued that if you tell someone that they ought to repay personal debt first and that in a nutshell is personal debt advice. Now the vast majority of IFAs in the UK are not taking up this licence. They think the definition above is stretching it a bit. After all recommending that a client repays debt that is costing probably more than 20% pa before investing or saving is plain common sense and hardly warrants a licence and is a long way from the original intention of the regime – which is aimed at keeping loan sharks at bay.

The IFA industry (as well as the APF firms of accountants and solicitors) are split on this. The waters will clear soon and we will update this site page as soon as we are clearer ourselves. In the meantime we continue to maintain that most IFAs do not need a FCA licence for credit broking.

'Exemptions from FCA Consumer Credit Licence rules'