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Office of Fair Trading Guidance for Credit Intermediaries and Brokers

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Presentation on theme: "Office of Fair Trading Guidance for Credit Intermediaries and Brokers"— Presentation transcript:

1 Office of Fair Trading Guidance for Credit Intermediaries and Brokers
Overview Office of Fair Trading Guidance for Credit Intermediaries and Brokers Retailer Information 1

2 What is the purpose of this document?
1 The OFT have issued 2 papers outlining the standards expected from Credit Intermediaries & Brokers in relation to the sale of credit. The papers also clarify what responsibilities finance providers have for the activities of their Credit Brokers & Intermediaries. 2 This document gives a brief overview of the guidance, and lists the key points you should consider when thinking about OFT requirements. 3 It is important to note these are not new requirements, the guidance documents are merely an amalgamation of existing regulations, and it is likely you already fulfil some or all of the requirements. 4 This document will indicate what the requirements are, give examples of unfair practices and pose some questions which will help determine if you are meeting OFT expectations. 5 The document allows you to view specific areas of the document at your convenience. By clicking on the relevant area you will be taken direct to the specific points in regard to that area. 6 Some areas of this document may not be relevant for your business, and you can choose to view those areas that are. For any retailers whom receive a commission as a result of selling finance as part of the sale it is imperative they read the ‘Commission Disclosure’ section. 7 The measures you have in place should be proportionate to the size and complexity of your business and some aspects of the Guidance may be more relevant to your business model than others. 8 This document does not replace any separate legal guidance which you may choose to seek, but aims to support you in understanding what actions you may need to take.

3 Main Menu Click on the relevant section below to view our overview of the guidance. About Guidance From OFT Sales Practices Complaints Handling Marketing Commission Disclosure Compliance & Enforcement Training Application Process Hitachi Responsibilities

4 Guidance from the OFT Back to Menu 4

5 About the guidance from the OFT What are its aims?
The OFT have issued 2 papers and have stated that the aims are: To explain to credit intermediaries and brokers the standards expected of them by the OFT. To clarify what responsibilities creditors (finance providers) have for the activities of their credit brokers and intermediaries. ‘Credit brokers’ and ‘credit intermediaries’ are technically different but your business will be either one or both. In any case, the OFT advises both credit brokers and credit intermediaries to have regard to all aspects of the Guidance. This is an ideal check point to review your systems and practices to ensure that you comply with OFT expectations. Back to Menu

6 About the guidance from the OFT Scope and purpose
The Guidance sets out the standards expected in terms of fitness to hold a consumer credit licence. To assist brokers in meeting these standards, the Guidance sets out types of behaviour that the OFT considers constitute unfair or improper practices and which, if engaged in, will call into question a person's fitness to be licensed. The OFT expects all brokers and intermediaries to have regard to both the letter and spirit of this Guidance and other relevant guidance and to comply with relevant legal obligations. They expect businesses to take reasonable and proportionate steps to ensure that they have suitable business practices and procedures in place, for example through training, monitoring, disciplinary policies/procedures or any other means necessary and appropriate to the business. Back to Menu

7 About the guidance from the OFT General principles
The OFT give the following as principles of fair business practice Treating borrowers fairly Transparency in all dealings with borrowers Not misleading borrowers (including by omission) Early disclosure and explanations of the key features and risks of the finance product (where appropriate) If advice is given, ensuring that it is suitable and appropriate to the borrower’s circumstances Clearly disclosing status Full and early disclosure of fees and commission (if any) payable by the borrower Full and early disclosure of cancellation rights Not operating business models which are likely to be unfair to borrowers Back to Menu

8 About the guidance from the OFT What areas are covered by the Guidance?
Marketing practices Sales practices Service provision Post-contractual issues Refunds of brokerage fees Complaints handling Regulatory compliance and enforcement Back to Menu

9 Marketing Back to Menu 9

10 Marketing practices - OFT expectations
Advertising and promotional material for services and credit should be clear, truthful, accurate and not misleading. It must comply with: CCA(Advertisements) Regulations Consumer Protection from Unfair Trading Regulations Committee of Advertising practice code Data Protection Act (direct marketing & use of data) Privacy and Electronic Communications Regulations ( marketing) It should not use false or misleading statements to induce customers to take out a contract Back to Menu

11 Some examples of unfair or improper practices in advertising and marketing…
Not including a representative APR or Representative Example if required. Using statements, price indications or financial incentives that are misleading in any way, including by omission of any relevant information. Making statements in advertisements and other promotional material that are not in plain and intelligible language and/or not easily legible. Using a trading name under which the business is not licensed by the OFT. Not including your name and/or postal address when required to do so, or concealing or misrepresenting your business’s identity. Back to Menu

12 Some examples of unfair or improper practices in advertising and marketing… cont.
Failing to disclose any limitations on independence, for example: Not having a status disclosure regarding independence. Such as ‘Credit is provided by a single lender with whom we have a commercial relationship’ – If appropriate, not disclosing that you receive a commission from the creditor and failing to make to the borrower, upon receipt of a request from the borrower to do so, disclosure of the amount of any commission (or other form of remuneration) payable by the creditor to you or, if not ascertainable, the method of calculation – see Commission Disclosure section Misleading the borrower, by act or omission, about his rights in respect of cancellation of, or withdrawal from, a credit agreement. Back to Menu

13 Check points Do you have a process to check that your credit advertising meets the requirements? Is your consumer credit licence up to date with all of the trading names that you use including web addresses (if appropriate)? Is there an appropriate status disclosure on all your credit adverts and any marketing information? Hitachi have issued some information on advertising to support our retailer partners – see your relationship manager if you need more information. Back to Menu

14 Training Back to Menu 14

15 The people who offer credit for you: What the OFT expects…
Customer-facing staff should have adequate training and information to ensure that they have sufficient understanding of the products and services offered. They should also know their features and associated risks to enable them to provide accurate information and explanations to borrowers where appropriate. They should understand what information the customer must be given under consumer credit regulation and the rules about how products are sold. (see Sales Practices) Back to Menu

16 Check points If your sales are face to face or on the telephone, does your training clearly explain what the rules are around selling practices and what is and is not allowed? Do your staff understand what information must be given to the customer and the importance of being clear and accurate in what they tell the customer about the credit? Are they aware of what can happen if credit is sold incorrectly? Do you ever check how individuals sell to make sure they are doing so correctly? Do you have a process to deal with issues around selling methods, for example from customer complaints? Back to Menu

17 Sales Practices Back to Menu 17

18 Sales Practices What the OFT expects…..
Using misleading or high-pressure sales tactics on prospective borrowers to persuade them to enter into agreements constitutes engaging in unfair or improper practices for the purposes of section 25 of the Consumer Credit Act. This could lead to you losing your Consumer Credit Licence Back to Menu

19 Some examples of unfair or improper practices for sales methods
If warm or cold calling not making sufficiently clear at the outset the identity of the relevant business and the purpose of the call. Continuing with a visit after a borrower has asked for the visit to end. Inappropriately offering a financial, or other form of inducement or incentive to the borrower to sign a credit agreement quickly/immediately. Making false representations with a view to persuading the borrower to sign a credit agreement. Passing on data without consent. Giving undue preference to the products of particular creditors where the object of doing so is, or can reasonably be concluded as being, for personal gain or advantage rather than in the best interests of the borrower. For example, because the credit broker or intermediary stands to benefit financially if the borrower purchases a product being offered by a particular creditor because of the financial arrangements between the parties. Back to Menu

20 Check points Does your staff training cover these points ?(if applicable) Do you monitor how your staff offer credit? Do you have processes to deal with any incident of alleged mis-selling? Back to Menu

21 Commission Disclosure
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22 What is the OFT view on commission disclosure?
In the Service Provision section of the Guidance under the heading of transparency the OFT say: Credit intermediaries should disclose whether they are entitled to any fee or commission from a creditor or third party. But only to the extent that this could affect the intermediary's independence and give rise to a conflict of interest impacting on the service provided to the borrower and any advice offered/recommendation made. The OFT expects “credit brokers” to follow the same principle Back to Menu

23 In what circumstances do I need to consider if I should
disclose whether I am entitled to receive a fee / commission? The Guidance states: Where knowledge of the existence/amount of the commission could actually or potentially have a material impact on the potential borrower's borrowing decision The existence/amount of the commission could actually or potentially act as an undue incentive for the broker or intermediary to recommend a particular credit product (as opposed to an appropriate alternative, from the borrower's perspective,) to a potential borrower and / or The OFT say disclosure in the above circumstances allows the borrower to take a view as to whether the mere existence of a commission might act as an undue incentive to the credit broker or intermediary to promote a particular credit product (even from a 'range' of only one product) as being suitable for his needs and circumstances (when it may not be). As part of your sale you need only disclose the fact that a commission is being paid. The OFT say that the amount (or likely amount) of any commission need only be disclosed if requested by the customer and must be supplied by the intermediary / broker before the agreement is executed. Back to Menu

24 Example circumstances when I need to consider if I should disclose whether I am entitled to receive a fee / commission The existence or amount of commission could act as an undue incentive for the credit broker or intermediary to recommend a particular product. Knowledge of the existence or amount of commission could have a material impact on a borrower’s decision. The impartiality of a credit broker or intermediary in promoting a credit product(s) to a potential borrower might be impacted by the existence of a financial arrangement with the creditor. The OFT’s use of the term “undue incentive” refers to situations where a borrower is offered a particular credit product by a credit broker or intermediary which they may not have been offered had the credit broker or intermediary not earned commission which acted as an “undue incentive”. Back to Menu

25 Examples to illustrate disclosure against the previous 3 circumstances
Commission income is a very important part of your business model and sales staff are encouraged to offer credit. Look at 3 You have 2 or more credit suppliers the products are similar and both would be suitable for the customer but company A pays a commission – you offer company A’s product Look at 1 Look at 3 The impartiality of a credit broker or intermediary in promoting a credit product(s) to a potential borrower might be impacted by the existence of a financial arrangement with the creditor. Look at 1 The existence or amount of commission could act as an undue incentive for the credit broker or intermediary to recommend a particular product. You have 2 products available to offer and you offer product B as there is commission but product A might be a better product for that customer. Look at 3 You only have 1 credit product available to offer but it attracts a substantial commission. This is not suitable for the customer’s needs or circumstances but you offer the product. See 2 Look at 3 The impartiality of a credit broker or intermediary in promoting a credit product(s) to a potential borrower might be impacted by the existence of a financial arrangement with the creditor. Knowledge of the existence or amount of commission could have a material impact on a borrower’s decision. The impartiality of a credit broker or intermediary in promoting a credit product(s) to a potential borrower might be impacted by the existence of a financial arrangement with the creditor. See 2 & 3 Back to Menu

26 Deciding if you need to disclose
You should carefully consider the indicators for disclosure which the OFT have given. In some cases it will be very clear that you either do or do not need to take action. If you are still not sure we would suggest that you take independent legal advice. Whatever your decision, we would suggest documenting the decision and the reasons for it so you have evidence of the reasoning should the OFT ask for it. We will be contacting relevant retail partners so as we are clear on their position and the reasons for it. Back to Menu

27 How and when would I make a disclosure?
The way you make the disclosure has not been specified by the OFT It could be in writing as part of your credit promotional material or in a separate document You could tell the customer as part of your pre purchase explanations. The OFT says that disclosure should be ‘sufficiently full and early’ before the borrower enters into the agreement. As such making the disclosure just before the agreement is signed is unlikely to be viewed as early enough. Back to Menu

28 What information needs to be in the disclosure?
You would need to inform the customer of the fact that you receive payment from the creditor. The Finance and Leasing Association (FLA) has issued a supplementary briefing document with more detail which can be found at the following web address. For Motor dealers / brokers the Retail Motor Industry Federation (RMIF) have also issued industry specific information which can be found at the following web address. If the customer asks how much commission is being paid then you need to be able to tell them or give a clear indication of how the commission is calculated. This must be done before the agreement is executed. The FLA and RMIF briefings have more details on possible ways to communicate the information to the customer and other relevant information regarding this guidance. The OFT have indicated that it is the responsibility of the broker or intermediary to supply the information to the customer. Back to Menu

29 What Hitachi Needs to Know
Hitachi may need to understand your decision relating to the disclosure of the fact of commission. We may be asking credit brokers and intermediaries who receive commission if they have decided to disclose the fact. If appropriate, we may request the reason for that decision and what advice this is based upon. We may also ask for examples of the documents where disclosure is made. Back to Menu 29

30 The Application Process
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31 The Application / Agreement
You should, as far as is reasonable and practicable, ensure that all information on a credit application is correct. You must not falsify details (for example as to income or employment), nor encourage or knowingly allow the borrower to do so. If there are doubts as to the accuracy of information provided on, or in support of, the application, these should be brought to the creditor's attention. If you are providing explanations, advice, or making recommendations, when doing so you should have proper regard to the borrower's needs and circumstances. In particular, this should take into account whether the product is affordable and whether there are any factors that may make the product clearly unsuitable for the individual borrower. If the creditor delegates to you the responsibility for meeting the requirement to provide a copy agreement or other documents, you should ensure that your staff are familiar with the relevant statutory requirements and have procedures in place to ensure compliance. Back to Menu

32 Examples of unfair or improper practices in service provision
Failing to communicate the identity of the creditor to the borrower Failing to explain sufficiently clearly to the borrower what the contract documents are and what they mean, or misrepresenting the form or nature of the credit agreement Failing to provide a borrower with an Adequate Explanation Failing to advise the borrower to consider the pre-contract information and explanation and (where this is disclosed in person) that he can take the pre-contract information away Providing information or explanation that is unclear, inaccurate or misleading or is not readily comprehensible Back to Menu

33 Examples of unfair or improper practices in service provision (cont.)
Failing to take adequate steps, so far as is reasonable and practicable, to ensure that information on a credit application relevant to an assessment of affordability is complete and correct Persuading, inducing or allowing the borrower to distort, falsify or misrepresent details relevant to an assessment of affordability Distorting, falsifying or misrepresenting details relevant to an assessment of affordability, with or without the borrower's knowledge Filling in any part of the credit application intended for completion by the borrower, except with the borrower's express consent and on the basis of information provided by the borrower Back to Menu

34 Examples of unfair or improper practices in service provision (cont.)
Failing to present privacy notices to borrowers in a way that their legal rights under the DPA will be clearly brought to their attention in such a way as to make them fully aware of their rights and how to exercise them. Not allowing the borrower sufficient opportunity to read and reflect on the terms and conditions of the credit agreement, and consider the implications, before entering into the agreement, or failing to advise him to do so. Encouraging or allowing the borrower to sign blank forms or photocopies, or any other document that has not been properly completed Back to Menu

35 Check points Is the Adequate Explanation always given to the customer?
Is the customer always given the pre-contract credit information? Is the customer always given time to review the documents before signing them? Is the customer always given a copy of the fully completed agreement? Are your staff aware that the above are legal requirements? Back to Menu

36 Complaint Handling Back to Menu 36

37 Complaint Handling The OFT expect credit brokers and intermediaries to respond to queries and complaints about them, appropriately, fairly, and in a timely manner (and explain any undue delays to borrowers). In simple terms, the OFT requires consumer credit licence holders to have effective and clear procedures for dealing with any complaints fairly and reasonably. Businesses' complaints procedures must take into account, amongst other matters, the time limits for dealing with complaints and the borrower's ultimate right to refer any unresolved dispute to the Financial Ombudsman Service. Back to Menu

38 Examples of unfair or improper practices in complaint handling
Not publishing or making readily available to borrowers details of complaints procedures Failing to provide (or effectively publicise) a non-premium rate UK telephone number as a means by which consumers can pursue complaints Not acknowledging receipt of complaints in a timely manner or at all Not providing a substantive response to complaints within eight weeks of receipt (in accordance with FSA complaints handling rules) Not informing a complainant, where appropriate, that he may refer the complaint to the Financial Ombudsman Service if he is not satisfied with the way that his complaint has been handled by your business. Back to Menu

39 Compliance and Enforcement
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40 Regulatory compliance and enforcement
The OFT expects credit brokers and intermediaries to take reasonable steps (subject to proportionality considerations) to ensure that they have suitable business practices and procedures in place to facilitate their own compliance and (as appropriate) that of any agents and associates (for example, through training, monitoring, record keeping, disciplinary policies/procedures, contractual requirements, or any other means necessary and appropriate to the business). To the extent that it is appropriate to do so, the OFT expects credit brokers and intermediaries to have regard to both the letter and the spirit of this guidance, other relevant OFT guidance and relevant legal obligations. Policies, practices and procedures should be documented and capable of being made available for inspection by the OFT and/or the relevant local authority Trading Standards Service. They should contain sufficient detail in respect of the actual procedures employed to allow the OFT to be able to form a view as to whether the procedures appear appropriate. Back to Menu

41 Regulatory compliance and enforcement
If required by the OFT you should be able to demonstrate to the OFT's satisfaction that your practices and procedures: Have been implemented in practice and are effective Are proactively monitored to assess their on going effectiveness Have been appropriately amended on the basis of the results of such monitoring as and when appropriate to do so. You should keep a record of the checks that you undertake to assess adherence to OFT Guidance. Back to Menu

42 Hitachi Responsibilities
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43 What are the OFT expectations of the Creditor?
The OFT considers that creditors should take appropriate responsibility for the actions or omissions of brokers and intermediaries acting as their agents and/or business associates. The OFT would expect creditors to take reasonable steps to satisfy themselves that employees, agents and associates (including business associates) are not engaging in unfair business practices or acting unlawfully and to take care in selecting third parties with whom to form business associations. The OFT would consider licensed businesses simply ignoring the unfair practices of those acting on their behalf – whether in-house or externally – to be inconsistent with fitness to hold a consumer credit licence. Back to Menu

44 How does Hitachi fulfil OFT expectations?
We have contractual clauses that cover requirements for retailer compliance. Provide material to support retailers. Review advertising and raise issues with retailers. Monitor customer complaints and undertake in depth reviews if there are concerns. Undertake mystery shopping. Review retailer customer facing material. Work with retailers to address issues. If any of the above demonstrates persistent non compliance by the retailer then this may lead to a suspension of credit facilities. Back to Menu

45 Questions? Should you have any questions or queries in relation to the content of this presentation, please contact your Strategic Relationship Manager or Business Development Manager to discuss Alternatively you can call the Business Development office on Hitachi Capital Consumer Finance 2 Apex View, Leeds, West Yorkshire, LS11 9BH


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