Authorisation from the FCA to Offer Credit
There may be situations where you want to offer a credit facility to your customers. In this case, you must be authorised by the Financial Conduct Authority.
Offering credit to consumers without FCA registration is a criminal offence. The worst cases can result in a fine and prosecution – or imprisonment.
You could also have further difficulties if a customer fails to make the required payments (details below).
Note: You would not be able to enforce this type of agreement if you did not have Financial Conduct Authority (FCA) authorisation.
FCA Rules You Must Follow
Your business would need to meet minimum standards to get FCA authorisation to offer credit to your customers. It would need to have a suitable business model and show that ‘fit and proper’ people are running the firm.
There would be extra rules to follow on how you run your business and treat your customers, such as:
- Avoiding unfair terms in sales contracts
- Consumer Credit Act 1974 (CCA)
- The Consumer Protection from Unfair Trading Regulations 2008
- The rules and guidance in the FCA Handbook (including the ‘Perimeter guidance’)
You would not need a licence if the customer will pay in four (4) or less instalments and within one (1) year of the date of sale.
An example would be making a daily supply (e.g. milk or newspapers). In this case, you could collect the payment at the end of the month.
Note: The Financial Conduct Authority provides a checklist of the main things you need to do before applying for consumer credit authorisation.
FCA Consumer Credit Authorisation
The list of things you need consumer credit authorisation for is concise. You would need to check if they would apply to the proposed business of your firm.
Common regulated consumer credit activities that you need to get FCA authorisation to carry out, include:
- Arranging credit for other people.
- Collecting or purchasing consumer credit debts.
- Helping people with debt problems (or advising on someone’s credit standing).
- Hiring or leasing out goods for more than three (3) months.
- Issuing credit cards.
- Lending money.
- Selling goods or services on credit (including hire purchase).
Note: All businesses that offer credit or financing to customers (not only credit specialist companies) must have FCA authorisation. This rule also applies to non-profit organisations.
If a Customer Fails to Pay the Required Amount
What action is available if a customer fails to make the required payments? In this case, you would need to send them a notice of default before taking any legal action. You would then be able to take court action to enforce the agreement.
You would only be able to make a default charge or debt collection costs to the customer if the original agreement included this particular right.
You may decide to use a debt collection agency or pursue the debt yourself. But, using improper debt collection practices means you could lose your consumer credit licence. Thus, the regulations do not allow you to:
- Harass the customer. Examples include calling them late at night time or sending threatening letters.
- Send letters that imitate official court documents to the customer. In fact, doing so is a criminal offence in some cases.
- Send customers misleading or false documents to try and coerce a payment.
Business to Business Lending Regulation UK
As a rule, there would be no need to have authorisation if your business only offers credit to other businesses. An exception would apply if the customer is:
- A sole trader
- A partnership with no more than three (3) partners
- An unincorporated association
In most cases, providing credit to these types of customers would mean you need to be FCA authorised.