As those involved in consumer credit are well aware, the Office of Fair Trading (OFT) closed its doors on 31 March 2014 and on 1 April 2014 a new more rigorous era of regulation dawned under the Financial Conduct Authority (FCA). Previously, payment of approximately £1500 and completion of some fairly straightforward paperwork earned you a consumer credit licence. This is not the case under the FCA.
One key question that arises for those operating in the market is whether a Special Purpose Vehicle (SPV) requires authorisation to conduct business as a lender. Some ambiguity in the past under the old regulatory framework caused many SPVs to obtain a licence as a precaution. For the reasons set out above this will not be so easy or cost effective as before. Many will be relieved to hear that SPVs holding equitable title to loans will benefit from a statutory exemption and it is now certain that they do not require FCA authorisation, provided that certain conditions are met.
The exemption and the conditions relating to it are to be found in article to 2(3) of the Financial Services and Markets Act 2000 (Consumer Credit) (Miscellaneous Provisions) (No.2) Order 2014, which amends the Financial Services and Markets Act 2000 (Exemption) Order 2001. The conditions which must be met by the SPV seeking the benefit of the same are that it:
- Is not the original lender and does not grant, is not required to grant, and does not promise to grant credit under the qualifying agreement or any other regulated credit agreement
- Does not undertake debt-counselling, debt-collecting or debt adjusting within the meaning of the Regulated Activities Order (RAO);
- Has entered into a servicing agreement in relation to the relevant consumer credit agreement with a servicer that is authorised to carry on debt-collecting, debt administration or entering into regulated credit agreements as lender; and
- Complies with the requirements of FSMA and where appropriate section 82 of the Consumer Credit Act 1974 (or has arrangements for its servicer to comply) when exercising the lender’s right to vary terms and conditions of the agreement.
SPVs can take advantage of an exempt period, being the 30 day period after a servicing agreement comes to an end and during which the SPV can undertake the regulated activities but remain exempt. Whilst useful this is not a great deal of time and some advance preparations for any change of servicer should be considered.
It is good to see that in this new era some previous uncertainties have been tackled so that those operating in the market can be sure of their position and so new funding and competition can enter the market, without compromising on consumer protection.