The legislation surrounding secured loans
Introduction
The Secured Loans market is often referred to as 'Unregulated', but what does this mean? This
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article will attempt to answer this question by looking at the both official and non-official governing bodies that affect Secured Loans. It will also briefly discuss the various Parliamentary Acts that incorporate legislation affecting the Secured Loans or Second Charges market. The target readership for the article is either those involved in the Finance Industry or members of the public with a general interest in Consumer Credit legislation which may affect them.
The Office of Fair Trading, or O.F.T as it is more commonly referred to, is responsible for a number of key areas with the ultimate aim of protecting the consumer. It has three main purposes. These are the enforcement of Competition and Consumer Protection rules, the analysis of markets to make sure they are working and communication to consumers, businesses and the government.
In terms of Secured Loans there are a number of areas the O.F.T deals with that affect the way that operators in the market promote themselves. The first of these is by administering Consumer Credit Licenses. With the rapid growth in people taking out credit in the early 1970s an act of parliament was passed in 1974 called the Consumer Credit Act and it is under this at that Consumer Credit Licences are granted. If an entity advertises promotes or brokers Secured Loans it must have a Category C Consumer Credit License. On application ( life assurance ) the O.F.T will investigate all people connected to the business applying to ensure that they are all people worthy of issuing or guiding people to enter into credit. There is a general misconception in the market that the Consumer Credit License is only required if the Secured Loans Company offers loans less than £25,000, but the Act clearly states that a Category C license is required for businesses that provide credit of ANY amount secured on land.
Other areas the O.F.T deal with that affects secured loans are there enforcement of other elements of the 1974 Act and also the updates to the Act which occurred in 2004 - these are the 'Agreements Amendment', 'Disclosure of Information' and 'Early Settlement' Consumer Credit Acts.
For secured loans these act govern a number of things. The first of which ( remortgages ) is the way that organisations can advertise secured loans. The Acts have rules governing what can and cannot be said in an advertisement and also have stipulation over certain words that have to appear in the advertisement. For example the words "YOUR HOME MAY BE REPOSSESED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT" probably have to appear on most Secured Loans advertisements. The Acts also stipulate that the Annual Percentage Rate (APR) must appear on Credit advertising and also given rules give its calculation (commonly known as the TTC calculation or total charge for credit).
There is a growing momentum in the Mortgage and Secured loans industry that at some time secured loans will be regulated by the F.S.A. With the already increased workload of the F.S.A it is more likely that an 'official' recommendation for their regulation by the F.S.A is more likely to come from the O.F.T
Financial Services Authority
The Financial Services Authority, or F.S.A as it is more commonly know, is responsible for enforcing the rules of the Financial Services and Markets Act 2000. Contrary to popular belief it is actually a non-government independent body and is financed solely from the income it receives from the very organisations it legislates. Although it is accountable to Treasury Ministers it is operationally independent.
In terms of legislation affecting Secured Loans the F.S.A regulates activities in relation to payment protection insurance (P.P.I). So if a business helps customers buy or claim on payment protection insurance it is highly likely it will need to apply to the F.S.A to be regulated. In the Secured Loans market whether you need to be legislated by the F.S.A largely depends on your involvement in P.P.I. If an organisation simply acts as an introducer it is quite likely it does not need to be regulated, however it is always advisable to seek legal advice.