FCA Update: Instalment Exemption
Under specific circumstances businesses who are offering or broking interest free credit do not need to be registered with the FCA. These rules on instalment exemption have recently been extended by the Government. From 18 March 2015 businesses offering interest free credit can increase the maximum number of instalments from 4 to 12 over a maximum 12 month period.
Note: All of the following criteria must be met for the exemption to apply:
- The credit is repayable by no more than 12 instalments (i.e. monthly) within no more than 12 months;
- It is a borrower-lender-supplier agreement (i.e. it finances the acquisition of specific goods or services);
- It is for a fixed amount; and
- It involves no charges or interest (i.e. there can be no administration fees).
Where the exemption applies, the credit is exempt from regulation under the Consumer Credit Act 1974. This means if you’re offering/broking instalment credit agreements, which fit within the amended exemption, then you don’t need permission from the FCA for consumer credit. And providing your business is not carrying out any other form of regulated credit activity then it wouldn’t need to be authorised by the FCA at all.
What should I do if I think the exemption applies to my business?
If the exemption applies to your business then the FCA has advised you don’t need to amend credit agreements immediately. However, where the exemption applies, credit agreements should not be documented in a CCA regulated form. This is because you risk communicating consumer credit rights and obligations to customer that don’t apply.
If you think the revised exemption applies to your business then you should seek independent legal advice BEFORE cancelling your FCA permission to ensure it’s not otherwise required.
You can find more information on the FCA’s website about exemptions and how to cancel permissions.
Please contact the team on 0845 120 6666 if you require additional guidance on instalment credit exemption.