Regulation of Secured Lending

Loans
Secured (second charge loans) are regulated under the Consumer Credit Act 1974. First charge mortgages on dwellings are regulated by the Financial Services Authority (FSA).

The Office of Fair Trading (OFT) is the principle regulator under the Consumer Credit Act and is responsible for licensing traders. All secured loan brokers and lenders must be licensed under section 25 of the Consumer Credit Act 1974. Anyone applying for a licence must satisfy the OFT that he or she is fit to be licensed and the proposed name to be licensed is not misleading or undesirable.

From 6th April 2008 licences will be issued for an indeterminate period, though renewal fees must be paid every five years. Existing licence holders will not automatically be granted indeterminate licences and must apply for a new licence when their current one expires.

An applicant for a new licence who has exposure either as a lender or broker to sub prime lending (that is to borrowers with impaired credit histories), must also complete the OFT Credit Risk Profile form. When assessing the credit risk profile the OFT will be seeking evidence to determine that a licence holder is competent to carry out their licensed activities and lending is responsible.

Insurance
Any firm selling insurance, including that with a secured loan, must be FSA authorised. Authorisation can either be to arrange or advise on insurance. Firms must comply with the FSA Handbook. The hand book requirements are broad and cover selling practices under the insurance conduct of business rules (ICOBS) systems and procedures, training and competence and complaints handling. Most importantly firms must comply with the principles of business and treat their customers fairly.

Data Protection
A firm processing personal data must be registered with the Information Commissioner’s Office and comply with the Data Protection Act 1998, particularly the eight data protection principles. These principles are complicated, but the main point is that all personal data must be processed fairly and lawfully.