Most mortgage brokers only deal with a limited number of consumer credit transactions and with the application period starting for firms to apply for full permission we are getting asked “do I need authorisation for consumer credit?

As from the 1^st October 2014 firms with interim permission have to put an application in to apply for full authorisation for consumer credit activities.  This date varies dependent on your location and permissions held, all firms should have received notification from the FCA in May explaining what date  they can apply from.

For firms which are already FCA authorised such as mortgage brokers it will involve a variation of permission application, usually £300.  The application is very straight forward and you need to tick to confirm you have compliance procedures in place, systems and controls in place and a business plan.  The application is completed online on the FCA’s new connect system. 

Do you need to be authorised?

This will depend on what permissions you require but for many brokers the only consumer credit activity they carry out is broking or introducing secured loans.

As you no doubt heard that from 21^st March 2016 the FCA plan to move secured loans from the FCA’s consumer credit regime and instead they will be governed by the mortgage rules.  This means mortgage brokers will no longer need authorisation for consumer credit (assuming secured loans is the only activity they needed approval for to begin with)

So the next question is could you go about 17 months without dealing with secured loans?  If yes and you don’t conduct any other consumer credit related activity then you have no reason to apply.  

One question raised was should all brokers need to have permission to do secured loans as during a mortgage fact find it may be identified that a secured loan is the best option for the client.  However whilst the likelihood of a secured loan being better is slim you don’t need to have consumer credit authorisation to recommend to a client they would be better taking a secured loan.  This isn’t giving advice relating to a product or provider, it’s just a generic statement and no advice or recommendation has been made on a secured loan product.  Without authorisation you would simply have to tell the customer to find a lender and product themselves, you wouldn’t be able to recommend a particular lender, product or introduce them.  So as long as you didn’t have a problem losing potential income then authorisation isn’t a must have for mortgage brokers.

If you want to still offer secured loans what permissions do you need?

The main category you will need is credit broking; this allows you to provide advice on a secured loan and also introduce secured loans. 

The other likely category you may need is debt counselling.  Mortgage brokers do not need this for mortgage advice any more.  Previously if a mortgage broker recommended a mortgage which consolidated debts then they needed debt counselling permission from the OFT.  This was dropped, however this still applies if you recommend a secured loan for debt consolidation, so whilst you no longer need debt counselling for mortgages you may need it for secured loans if any involve debt consolidation - at least until 2016.   So either you turn away any secured loan business which involves debt consolidation or add debt counselling to your variation of permission application (this can be restricted to not part of debt management on the application)

Finally you may also need credit information services, if you obtain credit reports for your clients to establish the client’s credit rating for the advice you give.  The FCA’s description for this activity is listed under PERG 2.7.20K (1) it states:

Taking any of the steps in (2) on behalf of an individual is a regulated activity.

(2) This activity catches steps taken with a view to:

(a) ascertaining whether a credit information agency holds information relevant to the financial standing of an individual;

(b) ascertaining the contents of such information;

(c) securing the correction of, the omission of anything from, or the making of, any other kind of modification of, such information; or

(d) securing that a credit information agency which holds such information stops holding the information or does not provide it to any other person.

As mentioned the variation of permission form is simple enough you simply tick the boxes of the extra permissions you require, and if you want to continue dealing with secured loans should tick Credit broking and more than likely need debt counselling.  Definitions of the categories can be found in PERG 2.7 in the FCA’s handbook.

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