New exemption for instalment credit

Person passing over their bank card Print publication


In a surprising move last week by the FCA, the exemption from regulation of interest free instalment credit used to finance a debtor- creditor-supplier agreement (now called a borrower-lender-supplier agreement) has been extended with immediate effect.

The previous exemption applied to agreements which were:

  • repayable by no more than four instalments within no more than 12 months
  • a borrower-lender-supplier agreement
  • for a fixed amount
  • involved no charges or interest

The new legislation extends the exemption to include credit repayable by up to 12 instalments within a year provided the credit agreement meets the other criteria listed above.

This means that “a firm offering or broking such agreements does not need to be authorised for consumer credit provided that it is not carrying out any other form of regulated credit activity”.

All of which is very odd. Not because this is not a sensible move, but because of the lack of detailed consultation on this change and of prior notice to those who will be affected. The explanatory memorandum states that the FCA and a range of consumer credit stakeholders, including consumer groups on the issue of instalment credit, were consulted on the draft Order. It also states that further guidance will be made available by the FCA, and that HM Treasury will monitor the practical effects of the Order to ensure it continues to meet the policy aims.

Consultation allows the unintended consequences, flaws and lack of clarity of proposed legislative changes to be ironed out before the final product emerges. This change could be susceptible to manipulation and abuse.

It is of concern that this has been apparently rushed through without due process; hopefully this will not prove to be a precedent for future changes.