The role of credit brokers in the UK financial sector is crucial in connecting consumers with suitable credit products. However, to maintain fairness, transparency, and consumer protection, brokers must adhere to strict regulations set by the Financial Conduct Authority (FCA). These rules are designed to prevent misleading practices, ensure customers make informed decisions, and promote ethical business conduct. There are some key FCA rules that credit brokers must follow to remain compliant and uphold industry standards.
1. Advertising, Financial Promotions and Communications
All advertising and promotional materials must transparently convey the firm’s role. If the firm operates solely as a broker, this must be clearly stated. In cases where the firm functions as both a broker and a lender, advertisements focusing on brokering services should explicitly mention this to avoid any consumer confusion.
All communications and correspondence with customers must prominently feature the firm’s legal name as it appears in the FCA Register, not just trading names. This ensures transparency and helps customers identify the firm they are dealing with.
You can read more about the rules around marketing for credit brokers in the FCA Handbook.
In all communications and documents intended for customers, brokers must clearly disclose their status, the nature of the services they provide, and any affiliations with lenders. This transparency ensures that customers are fully informed about the parties they are engaging with.
You can read more about this in the FCA’s Handbook, CONC 3.7.
2. Fee Charging and Disclosure
Credit brokers are prohibited from charging fees to customers or requesting payment details unless specific conditions are met. Prior to any fee transaction, brokers must provide customers with an “information notice” that clearly states:
- The legal name of the firm as registered with the FCA.
- A statement clarifying that the firm is a credit broker and not a lender.
- Details of the fee amount, its purpose, and the payment method.
Additionally, brokers must obtain explicit confirmation from customers acknowledging their understanding of this notice before proceeding with any fee-related transactions. You can read more in the FCA’s Handbook.
3. Transparency of Fees and Commissions
Fee-charging credit brokers must disclose any fees payable at an early stage and have them agreed upon in writing before a credit agreement is entered into. The disclosure must include how and when the fee is payable and whether a refund may be available. Firms must also disclose their fee (if any) to the lender to enable the lender to calculate the correct Annual Percentage Rate (APR).
You can read more in the FCA’s Consumer Credit Sourcebook (often referred to as ‘CONC’) in CONC 4.4 and CONC 4.5.
It is imperative that brokers do not withdraw any fees from a customer’s account without obtaining explicit consent. The fee amount or an estimate should be disclosed to the customer as early as possible in the engagement process.
You can read more about this in CONC 2.5.
4. Treating Customers Fairly and the Consumer Duty
Brokers are obligated to prioritise the interests of their customers. Communications should be clear, fair, and not misleading. Firms must ensure that their fee structures are transparent and easily accessible, fostering trust and clarity in their dealings.
You can read more about the Consumer Duty here.
5. Distance Contracts
For credit broking agreements concluded at a distance (e.g., online or over the phone), customers are entitled to a 14-day cancellation period during which they can withdraw from the contract without penalty. This aligns with the Distance Marketing Directive, ensuring consumers have adequate time to reconsider their decisions.
You can read more in CONC 11.1 of the FCA Handbook.
6. Sharing of Personal Information
Brokers must handle customer data responsibly. Sharing personal information, including payment details, with third parties is strictly prohibited unless the customer has provided explicit consent for a specific purpose. Unauthorised data sharing not only breaches FCA regulations but also contravenes the Data Protection Act.
You can read more about this in CONC 2.5.
7. Refunds
Credit brokers should respond promptly to any request for a refund. If a refund is required, it should be paid promptly. Section 155 of the Consumer Credit Act entitles the customer to a refund (less £5) of any brokerage fee if a credit agreement is not entered into within six months of an introduction to a source of credit.
You can read more about refunds in CONC 6.8 of the FCA Handbook.
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This summary is not a full list of the rules that apply to credit brokers. Your firm should always check the relevant parts of the FCA’s rules and guidance.