Definition of what is a credit
intermediary explained under the Consumer Credit
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);
(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
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
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