Legislation And Governing Bodies Affecting The Secured Loans Industry

Legislation And Governing Bodies Affecting The Secured Loans Industry



Introduction

The Secured Loans market is​ often referred to​ as​ 'Unregulated',​ but what does this mean? This article will attempt to​ answer this question by looking at​ the​ both official and non-official governing bodies that have an​ affect Secured Loans. it​ will also briefly discuss the​ various Parliamentary Acts that incorporate legislation affecting the​ Secured Loans or​ Second Charges market. the​ target readership for the​ article is​ either those involved in​ the​ Finance Industry,​ specifically secured loans,​ or​ members of​ the​ public with a​ general interest in​ Consumer Credit legislation which may affect them.

The Office of​ Fair Trading (OFT)

The Office of​ Fair Trading,​ or​ O.F.T as​ it​ is​ more commonly referred to,​ is​ responsible for a​ number of​ key areas with the​ ultimate aim of​ protecting the​ consumer. it​ has three main purposes. These are the​ enforcement of​ Competition and Consumer Protection rules,​ the​ analysis of​ markets to​ make sure they are working and communication to​ consumers,​ businesses and the​ government.

In terms of​ Secured Loans there are a​ number of​ areas the​ O.F.T deals with that affect the​ way that operators in​ the​ market promote themselves. the​ first of​ these is​ by administering Consumer Credit Licenses. With the​ rapid growth in​ people taking out credit in​ the​ early 1970s an​ act of​ parliament was passed in​ 1974 called the​ Consumer Credit Act and it​ is​ under this at​ that Consumer Credit Licences are granted. if​ an​ entity advertises promotes or​ brokers Secured Loans it​ must have a​ Category C Consumer Credit License. on​ application the​ O.F.T will investigate all people connected to​ the​ business applying to​ ensure that they are all people worthy of​ issuing or​ guiding people to​ enter into credit. There is​ a​ general misconception in​ the​ market that the​ Consumer Credit License is​ only required if​ the​ Secured Loans Company offers loans less than £25,​000,​ but the​ Act clearly states that a​ Category C license is​ required for businesses that provide credit of​ ANY amount secured on​ land.

Other areas the​ O.F.T deal with that affects secured loans are there enforcement of​ other elements of​ the​ 1974 Act and also the​ updates to​ the​ Act which occurred in​ 2004 - these are the​ 'Agreements Amendment',​ 'Disclosure of​ Information' and 'Early Settlement' Consumer Credit Acts.

For secured loans these act govern a​ number of​ things. the​ first of​ which is​ the​ way that organisations can advertise secured loans. the​ Acts have rules governing what can and cannot be said in​ an​ advertisement and also have stipulation over certain words that have to​ appear in​ the​ advertisement. For example the​ words "YOUR HOME MAY BE REPOSSESED if​ you​ DO NOT KEEP UP REPAYMENTS on​ a​ MORTGAGE or​ ANY OTHER DEBT SECURED on​ IT" probably have to​ appear on​ most Secured Loans advertisements. the​ Acts also stipulate that the​ Annual Percentage Rate (APR) must appear on​ Credit advertising and also given rules give its calculation (commonly known as​ the​ TTC calculation or​ total charge for credit).

There is​ a​ growing momentum in​ the​ Mortgage and Secured loans industry that at​ some time secured loans will be regulated by the​ F.S.A. With the​ already increased workload of​ the​ F.S.A it​ is​ more likely that an​ 'official' recommendation for their regulation by the​ F.S.A is​ more likely to​ come from the​ O.F.T

Financial Services Authority (FSA)

The Financial Services Authority,​ or​ F.S.A as​ it​ is​ more commonly know,​ is​ responsible for enforcing the​ rules of​ the​ Financial Services and Markets Act (FSMA) 2000. Contrary to​ popular belief it​ is​ actually a​ non-government independent body and is​ financed solely from the​ income it​ receives from the​ very organisations it​ legislates. Although it​ is​ accountable to​ Treasury Ministers it​ is​ operationally independent.

In terms of​ legislation affecting Secured Loans the​ F.S.A regulates activities in​ relation to​ payment protection insurance (P.P.I). So if​ a​ business helps customers buy or​ claim on​ payment protection insurance it​ is​ highly likely it​ will need to​ apply to​ the​ F.S.A to​ be regulated. in​ the​ Secured Loans market whether you​ need to​ be legislated by the​ F.S.A largely depends on​ your involvement in​ P.P.I. if​ an​ organisation simply acts as​ an​ introducer it​ is​ quite likely it​ does not need to​ be regulated,​ however it​ is​ always advisable to​ seek legal advice.

At the​ time of​ writing the​ FSA is​ very active in​ the​ area of​ P.P.I. it​ is​ presently looking into what happens to​ Insurance premiums when someone either settles a​ loan early or​ want to​ cancel only the​ P.P.I element of​ a​ secured loan. at​ the​ moment most insurance providers have a​ 'no refund' clause for both cases.

Another area the​ F.S.A deals in​ that may affect Secured Loans providers is​ their regulation of​ Mortgages. the​ FSMA states that if​ an​ authorised lender gets second charge loans business from an​ unauthorised lender then their advertisements must be approved by the​ F.S.A approved firm.

Finance Industry Standards Institute (FISA)

The Finance Industry Standards Institute (FISA) is​ a​ self-governing body set up independently by the​ industry to​ govern itself in​ the​ Secured Loans market. an​ annual subscription fee from its members funds FISA. it​ publishes a​ Code of​ Conduct for its Members that cover the​ standards it​ requires in​ advertisements. in​ essence these are guidelines that give the​ requirements of​ the​ O.F.T specifically for the​ Secured Loans sector. FISA also publishes a​ disciplinary procedure and warns in​ its documentation that it​ will enforce legislation on​ non-members,​ in​ the​ first instance by contacting the​ offending organisation and in​ the​ second instance by informing the​ relevant regulatory body.

FISA also conducts training courses every month or​ so. These cover the​ legislative requirements of​ being involved in​ the​ Second Charge sector. in​ the​ future the​ organisation plans to​ have three levels of​ 'qualification',​ these will be Foundation,​ Associate and Member,​ but it​ is​ waiting on​ developments in​ the​ O.F.T and F.S.A before it​ does this. One supposes whether this happens will also be influenced by the​ level of​ regulation that those two bodies impose on​ the​ Secured Loans sector.

Information Commissioners Office (ICO)

The Information Commissioners Office (ICO) enforces the​ requirements of​ the​ Data Protection Act (1998). Given that all businesses in​ the​ secured loans sector will at​ some time hold information about individuals they must be registered as​ a​ Data Controller with the​ ICO. in​ summary,​ the​ Data Protection Act ensures that all data kept on​ an​ individual (including employees) is​ accurate,​ fairly and lawfully processed,​ adequate relevant and not excessive,​ used for limited purposes,​ not sent overseas and is​ kept securely.

Other Regulatory Bodies and Secured Loans

Although the​ following organisations do not have a​ direct power or​ control over the​ secured loans market it​ is​ worthwhile mentioning them,​ not only for reasons of​ clarity,​ but also,​ as​ it​ is​ possible there will be changes in​ legislation,​ these organisations may later have more influence over the​ secured loans sector.

The Consumer Credit Trade Association (CCTA) is​ another independent body,​ but differs from FISA in​ that it​ deals with the​ whole Consumer Credit market. it​ also offers training courses,​ publishes regular newsletters and actively lobbies the​ Government about consumer credit related issues. in​ a​ world where we assume taking out credit is​ a​ relatively new phenomenon it​ is​ useful to​ note that the​ CCTA was founded well over a​ hundred years ago in​ 1891.

The Intermediary Mortgage Lenders Association (IMLA) is​ an​ independent body that represents the​ views and interests of​ institutions in​ the​ generation of​ mortgage business through Intermediaries.

The Council of​ Mortgage Lenders (CML) is​ yet another self-governed body operating in​ the​ Mortgage Industry. in​ a​ similar fashion to​ the​ CCTA it​ is​ also involved with government with legislative issues,​ issues policy guidelines. it​ is​ also renowned for produces statistics about the​ UK lending market covering,​ amongst other things,​ arrears and repossessions,​ the​ number of​ mortgages being taken out and specifics like the​ number of​ buy to​ let mortgages being taken out.

To finish this section,​ there is​ one more independent organisation called the​ Association of​ Mortgage Intermediaries (AMI) who acts as​ the​ trade body for mortgage intermediaries.

Conclusion

Although the​ Secured Loans sector is​ commonly referred to​ as​ 'unregulated' this document has hopefully shown there is​ still a​ lot of​ regulation (both official and un-official) that affects and encompasses the​ secured loans sector. in​ the​ finance area where the​ UK has a​ reputation for being the​ most regulated in​ Europe it​ is​ only a​ matter of​ time before secured loans come under the​ umbrella of​ the​ FSA. it​ is​ believed that instruction for the​ FSA to​ take control of​ the​ secured loans market is​ more likely to​ come from the​ treasury rather than the​ FSA itself. What is​ certain is​ that the​ secured loans market will become more legislated in​ the​ coming years. One thing to​ note if​ you​ are going to​ business in​ the​ Mortgage or​ Secured Loans market that subscription to​ these organisations can add up to​ many thousands of​ pounds per year.

For more information about the​ Secured Loans industry and the​ contents of​ this article please visit the​ Company Blog




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