10â Credit licensing

10â Credit licensing

The CCA 1974 stipulates that a licence is required to provide a consumer credit business or a consumer hire business.169 The licence application must be made in writing together with the fee.170 There are two types of licence that can be granted by the OFT: a standard and a group licence. A standard licence is ‘issued by the OFT to a person named in the licence on an application made by him, which, during the prescribed period, covers such activities as are described in the licence’.171 This type of credit licence is the one most commonly granted by the OFT, whilst a group licence is normally granted for companies. A group licence is one ‘issued by the OFT (whether on the application of any person or of its own motion), which, whilst the licence is in effect, covers such persons and activities as are described in the licence’.172 The OFT must grant a group licence ‘only if it appears to it that the public interest is better served by doing so than by obliging the persons concerned to apply separately for standard licences’.173 This is referred to as the ‘public interest test’.

The OFT has the power to renew or vary on request the terms of a group licence;174 refuse, revoke or suspend a group licence;175 compulsorily vary the group licence;176 grant a group licence in different terms from those applied for177 and exclude individual members from the cover of the group licence.178

The CCA 1974 provides that ‘a person who engages in any activities for which a licence is required when he is not a licensee under a licence covering those activities commits an offence’.179 Therefore, if someone fails to obtain a licence to offer credit that person commits an offence.

The consumer credit licensing system as originally set up by the CCA 1974 was criticised as ineffective, prompting reform in the CCA 2006. Indeed, Brown took the view that ‘the main body of the 2006 Act is concerned primarily with further requirements for information provision and a considerable overhaul of the licensing system. With regard to the latter, the 2006 Act gives the OFT more power to manage the licensing system more efficiently, for example, in terms of the application procedure, requirements imposed on licensees and duties with regard to information.’180

Importantly, the CCA 2006 amended the definition of both a standard licence and group licence and allowed the OFT to grant an indefinite standard

licence.181 The purpose of this provision was to allow the OFT to issue either an indefinite standard licence or one for a certain period of time.

The CCA 2006 also amended the application process for a standard credit licence.182 Applicants for a standard licence must state whether they are applying for the licence to cover the carrying on of that type of business with no limitation; or for the licence to cover the carrying on of that type of business only so far as it falls within one or more descriptions of business.183 The OFT has the power under the CCA 2006 amendments184 to vary a standard licence and even wind up the standard licensee’s business.185 Professor Macleod took the view that ‘it would appear that an applicant has a right to the issue of a standard licence provided only that there are satisfied the two conditions as to type of business and fitness, rather than that issue being in the discretion of the OFT’.186

The CCA 2006 also altered the test used to determine whether or not a person applying for a licence is ‘fit’ to do so. Under its original provisions (retained in amended form by the CCA 2006), the CCA 1974 provided that, when considering an application for a licence, the OFT must be satisfied that the applicant is a ‘fit person’ having ‘regard to any circumstances appearing to it to be relevant’, including any evidence tending to show that the applicant or any of the applicant’s past or present employees, agents or associates or, or where the applicant is a corporation, any person that appears to be a controller of such an entity, has committed any offence of fraud or dishonesty or violence,187 breached any provision of the CCA 1974,188 practised discrimination on grounds of sex, colour, race or ethnic or national origins in, or in connection with, the carrying on of any business,189 or has engaged in business practices which appear to be deceitful or oppressive, or otherwise unfair or improper.190

Under the CCA 2006 reforms, the OFT stated that it had adopted a more demanding fitness test which would vary depending upon the level of risk faced by consumers. Businesses and individuals applying for licences for riskier credit businesses would be required to demonstrate to the OFT that they were both

‘fit’ and ‘competent’ to do so. Once a licence has been granted by the OFT, it was imperative that the licensee maintained the standard of fitness expected. The CCA 2006 reforms attempted to strengthen the unfitness test by adding ‘some positive criteria of competence’.191 It is now provided:

In determining whether an applicant for a licence is a fit person for the purposes of this section the OFT shall have regard to any matters appearing to it to be relevant including (amongst other things):

181CCA 1974, s.22(1), as amended by CCA 2006, s.34.

182CCA 1974, s.24A, as inserted by CCA 2006, s.28.

183 Ibid. s.24A(1)(a) and (b).â 184â CCA 1974, s.30(1), as amended by CCA 2006, s.31.

185CCA 1974, s.34A, as inserted by CCA 2006, s.32.

186Macleod, above n. 3, at 206.

187CCA 1974, s.25(2A)(a), as amended by CCA 2006, s.29.

FSA, a record of fair dealing over a significant amount of time and a record of liaising with local authority trading standards services.200

If the OFT refuses an application for a consumer credit licence, from 6 April 2008 the applicant was entitled to appeal to the Consumer Credit Appeals Tribunal. The functions of that Tribunal were transferred to the First-tier Tribunal on 1 September 2009, which now hears and decides appeals against decisions of the OFT relating to its licensing decisions under the CCA 1974 and the imposition of a financial penalty on a licensee under the CCA 2006.201 The Tribunal has a wide range of powers at its disposal. For example, it may confirm the determination appealed against; quash that determination; vary that determination; remit the matter to the OFT for reconsideration and determination in accordance with the directions (if any) given to it by the Tribunal; and give the OFT directions for the purpose of giving effect to its decision. However, the Tribunal does not have the power to increase the level of the penalty imposed, or extend the time within which the penalty must be paid.

Examples of appeals from disgruntled credit licence applicants which have been heard by the Tribunal include: Road Angels Non-fault Accident Management Ltd v. Office of Fair Trading, where the Tribunal granted an appeal against a decision to refuse a standard licence application;202 Finance Select (UK) Ltd v. Office of Fair Trading, where the Tribunal determined that the OFT had failed to comply with the notice provisions of the CCA 1974;203 Mark Cooper v. Office of Fair Trading,204 where the Tribunal upheld the decision of the OFT to revoke the licence of the applicant due to a conviction for obtaining property by deception; and Vrajilal Laxmias Sodha (trading as V. L. Sodha, M. N. S. Financial and M. N. S. Consultancy) v. Office of Fair Trading,205 where the Tribunal upheld the decision of the OFT to renew a standard credit licence.

The OFT emphasised that ‘the Consumer Credit Act 2006 amends the CCA 1974 to include new provisions to improve and strengthen the licensing regime administered by the OFT’.206 In line with the amendments already discussed above, the OFT has a wide range of enforcement powers for breaches of a consumer credit licence. Indeed, Patient took the view that ‘some of the most significant changes to be introduced by the [2006] Act relate to the powers of the OFT’.207 She pointed out how the OFT has been given additional enforcement powers: ‘when issuing licences the OFT will be able to publish guidance in relation to how it determines whether persons are “fit” to hold a licence; where the OFT is dissatisfied with any matter in connection with a business carried on or proposed to be carried on by a licensee it may by notice require a licensee to do

200Ibid. 3.

201CCA 1974, s.41A, repealed by Transfer of Functions of the Consumer Credit Tribunal Order 2009, SI 2009/1835, an Order made under the Tribunals, Courts and Enforcement Act 2007.

202CCA/2008/0003.â 203â CCA/2008/0002

204 CCA/2008/0006.â 205â CCA/2008/0005.

206OFT, Consumer Credit Licensing: Statement of Policy on Civil Penalties (London, 2008) 1.

207J. Patient, ‘The Consumer Credit Act 2006’ (2006) 21(6) Journal of International Banking Law and Regulation 309, 314.