If you are a credit broker, there is important information you need to know about the fees you may charge your customers. This guidance seeks to explain those rules within the Consumer Credit Act 1974 and associated Regulations which cover credit brokers’ fees.
What is a credit broker?
If you introduce people to sources of credit or hire, you are a credit broker.
For example, you may be a retailer who asks a finance company to finance a purchase made by one of your customers, or perhaps you are a mortgage broker who helps someone obtain a loan from a bank or building society to buy a house.
Credit brokerage also includes introducing people to other credit brokers.
To act as a credit broker, you must have a consumer credit licence for your business. The application form and guidance information are available on the website for the Office of Fair Trading.
When do the rules apply?
The legislation controls introductions to virtually all sources of credit or hire where the amount sought does not exceed £25,000, or sources of mortgages of ANY AMOUNT for the acquisition or provision of a dwelling for occupation by the prospective debtor or a relative of his.
Its controls apply to agreements between traders and individuals, sole traders, partnerships and unincorporated associations, but not agreements made between traders and corporate bodies such as limited companies.
Charging for your services (agreement <£25k)
You can charge your customers a fee for your services as a credit broker. However, if the customer does not enter into an agreement for the credit or hire within six months of your introduction
you cannot ask for more than £5 (it does not matter why the customer does not go ahead with the agreement, even if it is just a change of mind)
the customer is entitled to ask for a refund of the excess if he has already paid more than £5, and can sue if you refuse
Mortgages
The rules about fees also apply to mortgage broking where your customer wants to borrow money to provide a dwelling for himself or one of his relatives.
However, they do not apply to mortgages for commercial properties if the amount to be borrowed is more than £25,000.
If the property is a mixed domestic and commercial premises (and the amount to be borrowed is more than £25,000), it is the primary function of the property that will determine whether the fee limit applies or not.
Disbursements
If the amount of credit involved is more than £25,000, you may still charge your customer for genuine expenses you have incurred, such as survey fees.
However, if the amount of credit is £25,000 or less, the customer will be able to recover virtually any payment he has made (either to you or direct to a third party connected to the agreement), with the exception of the £5.
Important notes
You must not tell your customers that your fees are non-returnable (except in the case of genuine disbursements, as mentioned above); or put any clause in your contract to this effect. You cannot take away the customer's rights
You should not keep your customer's money for the full six months if there is no prospect that an agreement will result
If you attempt to evade this legislation, the Office of Fair Trading may view it as an unfair business practice and review your fitness to hold a consumer credit licence
The law currently applies equally to your dealings with business customers (other than commercial mortgages, as mentioned above), unless they are limited companies
Do you advertise credit?
Adverts offering credit or hire facilities to consumers are controlled by the Consumer Credit (Advertisements) Regulations 2004. Further information about credit advertising can be found at the website for the Office of Fair Trading. If you quote brokerage fees in an advert, specific additional information must be given and you should seek advice / check the legislation and guidance. The Regulations do not apply to an advertisement for a regulated mortgage contract within the meaning of the Financial Services and Markets Act 2000.
This leaflet covers the main points only of the law on credit brokerage fees. It is not an authoritative interpretation of the law and is intended only for guidance. For further information, please contact your local Trading Standards Service.