High Cost Credit Bill (HC Bill 12)

A

BILL

TO

Make provision for regulating high-cost credit arrangements and providers of
such arrangements; to provide for controls on advertising, information and
communications associated with such arrangements; to make measures to
address the cost and affordability of such credit arrangements and their
associated charges; to regulate matters concerning repayments under such
arrangements; to make provision on advice and advice services in relation to
debt arising from such arrangements; and for connected purposes.

Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and
consent of the Lords Spiritual and Temporal, and Commons, in this present
Parliament assembled, and by the authority of the same, as follows:—

1 Financial Conduct Authority (“FCA”) duty to define high-cost credit
agreements and make rules

(1) In this Act—

  • “high-cost credit agreement” means a regulated credit agreement as
    5defined by section 137C of the Financial Services and Markets Act 2000
    (as inserted by the Financial Services Act 2012) that provides for—

    (a)

    the payment by the borrower of charges of a description from
    time to time specified by the FCA; or

    (b)

    the payment by the borrower over the duration of the
    10agreement of charges that, taken with the charges paid under
    one or more other agreements which are treated by the FCA’s
    rules as being connected with it, exceed, or are capable of
    exceeding, an amount specified by the FCA;

  • “charges” means charges payable, by way of interest or otherwise, in
    15connection with the provision of credit under the regulated credit
    agreement, whether or not the agreement itself makes provision for
    them and whether or not the person to whom they are payable is a
    party to the regulated credit agreement or an authorised person;

  • “authorised person” has the same meaning as in the Financial Services
    20and Markets Act 2000.

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(2) The FCA shall make rules prohibiting specific features of high-cost credit
agreements and those rules shall, for the purposes of section 137D of the
Financial Services and Markets Act 2000 (as amended by the Financial Services
Act 2012) be deemed to have been made under that section.

(3) 5The specific features of high-cost credit agreements to be prohibited by those
FCA rules are those contained in Schedule 1 (“the prohibited features”).

(4) The FCA shall also make rules requiring any authorised person entering into a
high-cost credit agreement to undertake or refrain from certain activities and
those rules shall, for the purposes of section 137A of the Financial Services and
10Markets Act 2000 (as amended by the Financial Services Act 2012) be deemed
to have been made under that section.

(5) The specific activities to be the subject of those FCA rules are those contained
in Schedule 2 (“the required behaviours”).

2 FCA rules to set out penalties for contravention

15Any rules established by the FCA pursuant to this Act shall specify the
penalties for contravention, and shall include provisions—

(a) for high-cost credit agreements containing any of the features set out in
Schedule 1—

(i) to be unenforceable against the borrower; and/or

(ii) 20for the recovery of any money or other property paid or
transferred under the agreement by the borrower; and/or

(iii) for the payment of compensation for any loss sustained by the
borrower as a result of paying or transferring any money or
other property under the agreement or obligation; and

(b) 25for authorised persons breaching the required behaviours set out in
Schedule 2 to be subject to any of the disciplinary measures contained
in Part XIV of the Financial Services and Markets Act 2000 (as inserted
by the Financial Services Act 2012) as the FCA shall deem appropriate.

3 Duty to review effectiveness and power to make additional rules beyond
30those specified

(1) Nothing in this Act shall restrict the power of the FCA to make additional rules
beyond those set out in Schedules 1 and 2 in relation to high-cost credit
agreements.

(2) The FCA shall keep the effectiveness of the rules made under this Act under
35review and shall, if it considers it necessary, exercise any discretion provided
within Schedules 1 and 2 to change the rules relating to high-cost credit
agreements and/or introduce additional rules relating to high-cost credit
agreements beyond those specified in this Act.

4 Power to place a levy on the high-cost credit sector to fund additional debt
40advice services

(1) In addition to any powers provided to the FCA within the Financial Services and
Markets Act 2000 (as amended by the Financial Services Act 2012) to levy fees and
charges in order to fund the Money Advice Service, the FCA shall also have the power
to introduce an additional levy on authorised persons entering into high-cost credit
45agreements in order to fund debt advice services.

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(2) When deciding whether to exercise this power, or the size of any such levy that may be
required, the FCA shall have regard to the number of people reported by high-cost credit
lenders to the FCA as referred to debt advice services by virtue of the requirement under
Schedule 2, paragraph 4(4)
.

(3) 5In setting the size of such a levy, the FCA may also have regard to any other indicators
of demand for debt advice amongst high-cost credit borrowers as it sees fit.

5 Duty to consider a cap on the total cost of high-cost credit agreements

(1) The FCA shall consider, on an annual basis, whether or not to use the powers
to cap the total cost of credit afforded to it in section 137C of the Financial
10Services and Markets Act 2000 (as inserted by the Financial Services Act 2012).

(2) In considering whether or not and how to use the powers referred to in this
paragraph, the FCA shall have regard to information contained on the
regulatory database referred to in Schedule 2, paragraph 4.

6 Commencement, implementation and transitional powers

(1) 15The provisions of this Act shall come into force on the day on which it is
passed.

(2) The FCA shall put in place rules pursuant to this Act within three months of
the commencement of this Act.

(3) The regulatory database referred to in Schedule 2, paragraph 5 of this Act shall
20be established by the FCA within twelve months of the commencement of this
Act.

(4) In advance of the regulatory database being established the FCA shall require
any authorised person entering into a high-cost credit agreement to use credit
reference services to determine whether or not a high-cost credit agreement
25can be entered into in accordance with the rules established by the FCA under
this Act.

(5) For the purposes of this Act the definition of credit reference services is the
same as that contained in the Financial Services and Markets Act 2000 (as
amended by the Financial Services Act 2012).

7 30Short title

This Act may be cited as the High Cost Credit Act 2013.

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SCHEDULES

Sections 1 to 3

SCHEDULE 1 Prohibited features of high-cost credit agreements

Restrictions on the amount of high-cost credit that can be advanced

1 (1) 5No high-cost credit agreement may be entered into if this would be
unaffordable for the borrower. The FCA shall specify how authorised
persons are expected to assess the affordability of high-cost credit
agreements and may also specify limits in respect of—

(a) the total amount of contractual liability that may be created; and/ or

(b) 10the total amount of repayments permitted to fall due in any such
period as the FCA may determine appropriate.

(2) The FCA may express the limits referred to in this paragraph in absolute
terms or as a proportion of the borrower‘s income.

(3) The limits referred to in this paragraph may be specified in respect of a
15single high-cost credit agreement or the aggregate of all high-cost credit
agreements entered into by a borrower.

Level of default charges to be restricted

2 (1) No high-cost credit agreement may make provision for the payment by the
borrower of additional charges on default or in respect of the collection of
20unpaid amounts unless the amounts contained in the agreement are beneath
the limits from time to time be specified by the FCA.

(2) When setting the limits referred to in this paragraph the FCA shall have
regard to the duration of high-cost credit agreements and may set different
limits for agreements of different durations.

(3) 25The limits referred to in this paragraph may include limits on the duration
for which default or collection charges can be incurred by the borrower in
respect of any high-cost credit agreement as well as limits on the amount of
those charges.

Prohibition on charges connected with the use of “continuous payment authority”

3 (1) 30No high-cost credit agreement or connected agreement may create a liability
for any charge to the borrower for the collection of payments through the
use of a “continuous payment authority” or similar process as may be
specified by the FCA.

(2) For the purposes of this Act “continuous payment authority” means an
35authorisation for the lender to collect payments directly from the borrower’s
bank or other transactional account.

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Restrictions on “rollover” and repeat lending

4 (1) No high-cost credit agreement may make provision for the deferment of
contractual repayments on payment of additional fees or charges by the
borrower unless those fees or charges are beneath the limits from time to
5time specified by the FCA.

(2) No high-cost credit agreement may make provision for the deferment of
contractual repayments on payment of additional fees or charges by the
borrower on more occasions than shall be specified by the FCA.

(3) No high-cost credit agreement may be entered into if this would cause the
10borrower to exceed a limit as may be set by the FCA on the total number of
high-cost credit agreements that can be entered into in any “given period”.

(4) For the purposes of this paragraph “given period” means such period of
time as specified by the FCA.

(5) For the purposes of this paragraph the FCA may specify different limits on
15the number of high-cost credit agreements that may be entered into in any
given period for high-cost credit agreements of different durations.

Requirements in respect of high-cost credit agreements and guarantors

5 (1) No high-cost credit agreement may be entered into which imposes a liability
on a third party unless—

(a) 20the liability that is being created to the third party has been
adequately explained to that party; and

(b) the third party has provided a signature consenting to the creation of
the liability.

(2) For the purposes of this paragraph “adequately explained” shall have the
25meaning to be specified from time to time by the FCA.

Sections 1 to 6

SCHEDULE 2 Required behaviours of authorised persons entering into high-cost credit
agreements

Advertising of high-cost credit agreements

1 (1) 30All authorised persons advertising high-cost credit agreements shall—

(a) contain within their advertising a warning, in a form and manner
from time to time specified by the FCA, that the agreements being
promoted are high-cost and that entering into any such an agreement
should be considered carefully;

(b) 35contain an illustration of the “typical cash cost” of the agreements
being promoted in a form and manner specified by the FCA;

(c) contain a clear statement of any default fees and charges that may be
included in a high-cost credit agreement in a form and manner
specified by the FCA;

(d) 40contain information on sources of free debt advice services in a form
and manner specified by the FCA;

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(e) refrain from using content or advertising in such a way that breaches
the standards as shall from time to time be set for high-cost credit
advertising by the FCA following consultation with the Advertising
Standards Authority;

(f) 5refrain from promoting high-cost credit agreements through the use
of SMS text or picture messages to mobile phones;

(g) refrain from promoting high-cost credit agreements through the use
of phone calls.

(2) For the purposes of this paragraph the advertising standards set by the FCA
10may specify restrictions on the timing of television or other broadcast
advertising and the sponsorship of specific types of sporting or cultural
activities as may be determined inappropriate by the FCA.

Requirement to disclose information concerning business practices to the FCA

2 (1) Any authorised person entering into high-cost credit agreements may be
15required by the FCA to disclose details of their marketing strategy and
methods of generating loans to the FCA.

(2) For the purposes of this paragraph the terms “marketing strategy” and
“methods of generating loans” have the meanings specified from time to
time by the FCA.

20Requirement of credit brokers to provide lender details to the borrower

3 (1) Any person engaging in credit brokerage shall be required to disclose details
of the lenders on whose behalf they are acting to a credit applicant in a form
and manner and at a time in the application process to be specified by the
FCA.

(2) 25For the purposes of this paragraph “credit brokerage” has the same meaning
as in the Consumer Credit Act 1974.

Requirement to register details of loans on a regulatory database and to consult this prior to
entering into agreements

4 (1) The FCA may require any authorised person entering into high-cost credit
30agreements to enter details of their agreements on a database as shall be
established for that purpose by the FCA.

(2) For the purposes of this paragraph the agreement details to be entered on the
database shall be those as shall be specified by the FCA and shall include—

(a) details of borrower: including name, address, date of birth and
35national insurance number or other unique identifiers as may be
specified by the FCA; and

(b) details of the loan agreement: including the amount advanced, the
interest and other fees contained in the agreement, the amount
repayable, and the contractual date on which repayment is due.

(3) 40Persons entering details of high-cost credit agreements onto the database
shall also be required—

(a) to consult the database prior to making any high-cost credit
agreements in order to ensure that any limitations on the making of
high-cost credit agreements that may be set by the FCA pursuant to
45this Act are observed; and

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(b) to maintain up to date records of the performance of any high-cost
credit agreements entered on the database, including but not limited
to details of any missed contractual repayments, any deferments,
and the level of default fees or other charges imposed as a
5consequence.

(4) In the event that a high-cost credit agreement cannot be entered into as a
result of the limitations set by the FCA pursuant to this Act then authorised
persons required to use the database shall refer credit applicants to debt
advice services in a manner to be specified by the FCA and shall report any
10such referral to the FCA.

(5) In so far as the FCA incurs any costs in establishing and maintaining the
database referred to in this paragraph, the FCA may recover these from
authorised persons entering into high-cost credit agreements by requiring—

(a) a payment per agreement entered into the database by the
15authorised person; or

(b) an annual payment based on the overall size, as defined by the FCA,
of the high-cost credit lending business undertaken by the
authorised person; or

(c) a combination of these methods.

20Requirements relating to use of “continuous payment authority”

5 Where an authorised person enters into a high-cost credit agreement which
provides for the collection of payment through the use of “continuous
payment authority”, the FCA may require the authorised person to—

(a) provide information to the borrower about their right to cancel any
25such authority with their bank account provider in a manner and
form as may be specified by the FCA;

(b) provide borrowers with three days notice of the date on which the
continuous payment authority is to be used;

(c) refrain from exercising the use of the continuous payment authority
30in such circumstances as may be specified by the FCA.

Circumstances under which lenders must inform borrowers of sources of free debt advice

6 Authorised persons entering into high-cost credit agreements shall be
required to inform borrowers of sources of free debt advice in a manner and
form to be specified by the FCA whenever—

(a) 35a contractual repayment has been missed; or

(b) there has been a deferment of a contractual repayment.

Requirement to put in place repayment plan for debtors

7 Where a debt advice service contacts an authorised person concerning a
high-cost credit agreement in relation to which a default has occurred then
40the FCA shall require the authorised person to—

(a) immediately cease any enforcement action against the borrower; and

(b) agree to a schedule of repayments (“a repayment plan”) based on the
ability of the debtor to pay as advised by the debt advice service; and

(c) waive any fees, charges or interest, which may otherwise have fallen
45due under the agreement over the period of the repayment plan.

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Requirement to accept offers from third parties to settle outstanding debts

8 Where an authorised person is contacted by third parties as shall be
specified by the FCA, and the third party is acting with the consent of the
borrower and offers to make a payment to settle any outstanding high-cost
5credit agreement then the FCA shall require the authorised person to—

(a) co-operate fully with the third party to ensure that the settlement of
the agreement takes place as quickly as possible; and

(b) not add any interest, fees, or other charges to the amount
outstanding from the date on which the authorised person has been
10contacted by the third party.