CCL & Mortgage Brokers

For those of you coming up to the 3 month window when it’s time to apply for your Consumer Credit Licence to move from interim permissions, you might want to consider the following.  Under the FCA regime a mortgage broker doesn’t need a CCL unless they wish to advise on BTL or Second charge Mortgages. This is because Credit Broking carried out in arranging regulated first charge residential mortgages are covered by an exclusion. In effect this exclusion means separate authorisation via Consumer Credit is not required as existing FCA legislation covers regulated mortgage contracts or home purchase plans.

The other area of confusion we have encountered is around the provision of debt counselling. Many people seem to have the view that discussing   someone’s income and expenditure and existing debts falls under debt counselling which is not strictly true.

The FCA differentiates by having two types of debt advice provision:

1.     Generic advice that is not regulated debt counselling.

2.     Advice on the liquidation of a specific debt or debts due under a consumer credit agreement (or a consumer hire agreement), which is regulated and needs authorisation. 

All regulated debt advice provision will be subject to conduct rules based on standards currently set out in the OFT’s Debt Management Guidance.

What is the basic definition of debt counselling?

It involves the following elements:

(1)   It is advice given to:

(a)   A borrower about the liquidation of a debt due under a credit agreement; or

(b)   A hirer about the liquidation of a debt due under a consumer hire agreement.

(2)   The advice must relate to a particular debt and debtor.

(3)   It covers the giving of advice. It does not cover just giving mere information.

Does it matter if the advice also covers debts that are not due under a credit agreement or a consumer hire agreement?

No. If advice is given to a debtor about his debts, some of which are not payable under a credit agreement or a consumer hire agreement, that advice is regulated as long as some of the debts are due under a credit agreement or a consumer hire agreement. There is nothing in the definition of debt counselling or in the policy for regulating it that restricts debt counselling to a situation in which all the debts are consumer credit ones.

What if I advise a client to consolidate their unsecured consumer credit debts into a regulated mortgage contract?

Leaving aside the exclusions, this would be debt counselling as the mortgage adviser is proposing that the debtor should consolidate a number of his consumer credit debts into a single (potentially more manageable) debt with a view to the debtor being better able to liquidate all of his debts.

However, the exclusion in article 39J of the RAO (Activities carried on in relation to a regulated mortgage contract or a home purchase plan) is likely to apply. So far as applicable to this example, the exclusion works like this:

(a) The advice must relate to a regulated mortgage contract. - This condition is satisfied.

(b) Giving the advice must be a regulated activity. If the only regulated activity involved in giving the advice is debt adjusting, that is not enough. Another regulated activity must apply too. However, the exclusion can still apply if the advice involves debt adjusting in addition to another regulated activity. - This condition is met because the adviser is advising on regulated mortgage contracts.

(c) When the mortgage lender enters into the mortgage it will be carrying on the regulated activity of entering into a regulated mortgage contract. - This condition is satisfied.

PERG 4.7 explains when entering into a regulated mortgage contract applies. Therefore you do not need debt counselling permissions either. 

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