On 18 March, the Government introduced legislation which extends the exemption for instalment credit.
Previously, the exemption stated that a credit agreement would be exempt if it met all of the following criteria:
- it is repayable by no more than four instalments (e.g. quarterly), within no more than 12 months
- it is a borrower-lender-supplier agreement (i.e. it finances the acquisition of specific goods or services)
- it is for a fixed amount
- it involves no charges or interest (e.g. there can be no admin fee) or is secured on land
The new legislation states that a credit agreement will be exempt if it meets all of the following criteria:
- it is repayable by no more than 12 instalments (e.g. monthly), within no more than 12 months
- it is a borrower-lender-supplier agreement (i.e. it finances the acquisition of specific goods or services)
- it is for a fixed amount
- it involves no charges or interest (e.g. there can be no admin fee) or is secured on land
This last point still requires clarification as it is unclear if offering a discount for paying in full will constitute a charge or interest on those who pay by instalments.
The revised exemption came into force on 18 March 2015. It applies to credit agreements entered into or brokered on or after that date. As a result of the change in legislation, some firms may no longer need to be authorised.
Further guidance will be issued in the future, but in the meantime more information can be found on the FCA website.
By Mike Hyde
