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December 1, 2009updated 25 Jan 2022 8:33am

New obligations for brokers

Definition of what is a credit intermediary explained under the Consumer Credit Directive

By Charlotte Winter

Definition of what is a credit intermediary explained under the Consumer Credit Directive

Article 21 of the Consumer Credit Directive 2008/48/EC (CCD) places new obligations on ‘credit intermediaries’ acting as agent for the lender for consumer credit business. Previously, English law has talked about ‘credit brokers’ rather than ‘credit intermediaries’, with section 56 of the Consumer Credit Act 1974 (CCA) creating a concept of statutory agency in certain circumstances.

These new obligations are to be adopted by 11 June 2010 and Department for Business, Innovation & Skills has prepared draft regulations for this purpose. In part, the draft regulations codify existing best practice already in effect in the consumer finance industry.

The regulations will introduce new Sections 54A to 54D into the CCA. Section 54A creates a new definition of credit intermediary as “a person, not acting as a creditor, who for consideration that is or includes a money consideration and in the course of business:

(a) presents or offers to a debtor a prospective regulated consumer credit agreement;

(b) assists a debtor by undertaking other preparatory work in respect of an agreement referred to in (a); or

(c) enters into a regulated consumer credit agreement with a debtor on behalf of a creditor.”

The definition is wide and catches those who effect introductions but those who also undertake “preparatory work” for a fee in respect of prospective regulated agreements. It is not clear what “preparatory work” is intended to mean but is likely to include submitting a proposal for approval.

Where a credit intermediary is acting, they must:

1. Disclose, the extent of their powers and whether they work for the creditor or independently, in advertisements or documentation intended for debtors;

2. Agree with the debtor and disclose in writing any fee payable by the debtor to the credit intermediary for his services. This must be done before concluding an agreement with the debtor and before the debtor enters into the credit agreement;

3. Communicate to the creditor the fee payable by the debtor for the purposes of calculating the APR.

Failure to comply with these requirements will be a criminal offence punishable by a fine of up to £2,500 (€2,800) and possible imprisonment for subsequent offences.

Finance companies and those who act as credit intermediaries should ensure they are aware of the duties imposed by the CCD and should consider whether training is needed to deal with the disclosure requirements.

Finance companies should also consider whether amendments need to be made to existing contracts with agents in light of the new definition and disclosure obligations, to ensure that parties are adequately protected.

Charlotte Harrison and Jo Owens

Charlotte Harrison is an assistant solicitor and Jo Owens is an associate at the law firm HBJ Gateley Wareing

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