It’s easy to think that as B2B service providers Consumer Credit doesn’t affect our businesses. However, for many that quite simply isn’t the case. Sole Traders, small businesses, clubs…many are affected and protected by new consumer credit laws.
To help us to clarify this somewhat complex area we have invited our friend Lisa Botterill, Partner from the East Midlands law firm Nelsons, to guest on our Evoke Telecom blog site and share her thoughts with us.
Lisa has a wealth of experience and knowledge in working with consumer credit issues, gained not only during her time at Nelsons, but also in previous roles that include Operations Director at a business within the financial services sector that provided consumer credit.
“When we talk about “consumer credit” what do we actually mean? The legislation refers to agreements with “individuals” and it would be easy to presume that this would cover only personal finance arrangements with consumers but that is not the case. The legal definition of an “individual” includes everyday consumers as you would expect but it also covers sole traders, partnerships of 2 or 3 people as well as unincorporated bodies e.g. sports/members clubs which are the most common form of organisation that often fall into this category. This is a real trap for the unwary and gives the protection of consumer credit law to small business borrowing.
The law on consumer credit covers agreements where the creditor provides the debtor with a cash loan or an arrangement where the debtor is allowed time to pay for something and covers most agreements over £50. A few examples of the sort of arrangements covered by the rules are hire purchase agreements, log book lending and pay day loans but in a telecoms context what you are most likely to come across is a leasing/hire agreement where a customer is provided with finance, often through a third party, to purchase a new system. Referring the customer to a provider of finance or arranging the finance through a third party falls within definition of consumer credit activities (credit broking) even though the credit is provided by a third party.
There has been a recent tightening of the law on consumer credit, driven primarily by the activities of the high rate short term lenders. Because of the strange anomaly that consumer credit also covers some small business lending, the new rules that came into force from April 2014 will also apply to small business customers so that anyone who provides credit needs to go through a brand new application system to be able to continue to provide consumer credit after April 2016.
So what are the options available now where a customer wants to buy a phone system but pay for it over a period of time? Many providers have simply stopped providing a finance option to small businesses because of the new application process and only a small amount of their business is caught by the consumer credit regime, presumably because of the time and cost of the new application system but this new procedure does not appear to be as daunting as it may at first appear. There are two tiers of registration under the new system and a business that only refers customers to third party providers of finance can go through the simpler and more streamlined application process for what is known as “limited permission” rather than needing to apply for full authorisation. There are still important rules to comply with so that consumers are provided with the correct information and treated fairly but the limited permission route is quicker and cheaper in terms of the initial application fee and annual ongoing fees and definitely worth considering to ensure that there remains a finance option for small business customers.”
This article provides general guidance on a complex area of law and should not be taken as legal advice. If you require more detailed guidance please contact Lisa – [email protected]