What Is Credit Broking? FCA Permissions Explained

A credit broker is a business that introduces individuals to lenders or hirers, or helps them to take out a regulated credit or consumer hire agreement, and credit broking is the regulated activity of doing so. In the UK you need FCA authorisation to do it by way of business, with either limited or full permission depending on how central broking is to what you do.

What is credit broking?

Credit broking is defined in the Regulated Activities Order (RAO). Article 36A sets out the kinds of activity that count. In summary, they include effecting an introduction of a borrower to a lender, to a consumer hire provider, or to another credit or hire intermediary; presenting or offering a regulated credit agreement; assisting with preparatory work; and entering into a regulated credit agreement as agent for the lender. The article also excludes operating an electronic system in relation to lending, which is a separate regulated activity.

The simplest way to think about it: if your business sits between a customer who wants credit (or to hire goods) and the firm that provides it, and it is in a position to influence or enable that agreement, you are probably credit broking. A website that finds loans for visitors is credit broking. So is a motor dealer who introduces buyers to a finance company, or a vet or dentist who introduces patients to a lender to pay for treatment.

People sometimes search for a "licensed credit broker" or "credit brokerage". The regulatory term is authorised by the FCA. A firm should appear on the FCA Register with permission for credit broking before it carries on that activity.

Who is a credit broker? Primary and secondary brokers

The FCA splits credit brokers into two groups on its consumer credit brokers page, and the split drives the permission you need.

• Primary credit brokers are firms whose main business is helping customers find credit and hire agreements. A commercial broker, which helps unincorporated firms, sole traders and small partnerships find credit, is a subtype.
• Secondary credit brokers are firms for whom credit broking is not the main business. The FCA gives examples including motor dealers, vets, dentists, gyms and golf clubs, and yacht brokers.

Full permission or limited permission credit broking?

Every firm that needs authorisation for consumer credit activity is either a full permission firm or a limited permission firm. Limited permission firms carry out only certain credit-related activities and face fewer threshold conditions (the FCA's minimum standards). All other firms are full permission firms.

Some points from the FCA's guidance are easy to miss:

• Primary brokers are full permission firms unless they only ever introduce individuals to consumer hire agreements, hire purchase agreements or Green Deal plans.
• A motor dealer that introduces customers to finance for purposes other than buying or leasing the vehicles it sells, such as unsecured personal loans, needs full permission (FCA: motor dealers).
• If you already hold full permission for something else, such as insurance or mortgage broking, you remain a full permission firm whichever consumer credit activities you add.
• Making credit broking a main business, acting as a domestic premises supplier, or carrying out debt counselling or adjusting as a main business all push a firm to full permission.
• For secondary brokers, the FCA expects the introductions to depend on the main business. If you would not make the introductions without your main business, and most of your revenue comes from that main business rather than the credit, limited permission may fit. If you do not meet every criterion, you will need full permission.

The FCA places the responsibility on you: it is for the firm to work out whether it needs authorisation and which permission. Our explainer on full versus limited permission and our pages on credit broking and limited permission credit broking go into the decision in more depth.

How do you become a credit broker?

1. Confirm you are in scope. Check your activities against article 36A and the FCA's primary and secondary broker pages. The authorisation checklist can help you test readiness.
2. Choose limited or full permission. You select this when you start your application on Connect, so decide it before you begin.
3. Register on Connect. The FCA application system is Connect, and the application must be submitted through it.
4. Prepare the application. The FCA lists an application form, a business plan, financial forecasts and any other forms and supporting material for your firm type.
5. Pay the application fee. The fee is non-refundable if you withdraw or are refused. It is refunded if the application is rejected for missing minimum information.
6. Work with your case officer. The FCA says it will usually assess a complete application for a FSMA firm within six months, and that an incomplete application could take up to twelve.

The FCA's how to apply page sets out this process and adds that you are unlikely to be authorised straight away. Weak or generic business plans slow applications down, so it pays to be specific about your lenders, lead sources and fee model. Our guide to writing an FCA business plan covers what to include.

What rules must a credit broker follow?

The main conduct rules are in CONC 2.5, the credit broking section of the Consumer Credit sourcebook. It applies to firms that carry on credit broking, including introductions for regulated credit agreements and consumer hire agreements. Under CONC 2.5.3R, a firm must:

• explain the key features of a regulated credit agreement where it is responsible for doing so;
• take reasonable steps to check that a product it recommends is not unsuitable for the customer;
• advise the customer to read the terms and give them enough time to consider them;
• get the customer's consent before referring them to a third party or a claims management service;
• disclose any group link with a lender or owner; and
• handle personal data properly, including explaining how it will be used and allowing consent to be withdrawn. CONC 2.5.4G says a privacy notice can help satisfy part of this.

CONC 2.5.5R and 2.5.6R deal with credit references. A negotiator must give the customer the name and address of any credit reference agency it has been told about, alongside the section 157 Consumer Credit Act notice. CONC 2.5.7G adds that firms should avoid leaving a footprint on a customer's credit file before the customer is ready to apply, and should offer a quotation search where practicable.

Fees and the unfair practices to avoid

Fees are where credit brokers most often get into difficulty. CONC 2.5.8R lists unfair business practices. Among them, a firm must not charge a fee for an introduction to a different type of credit or hire than the one promised, promoted or sought, unless the customer, after the firm has explained the reason for the fee, consents (CONC 2.5.8R(19)). It must not take a fee from a customer's payment account without express authorisation (CONC 2.5.8R(20)). The accompanying guidance expects the amount, or likely amount, of any fee to be disclosed as early as practicable (CONC 2.5.9G(5)), and the key features and risks of the product to be explained before the customer consents to an introduction (CONC 2.5.9G(6)).

In practice, this means a charging model needs a clear customer-facing explanation, a documented consent step, and a refund process that is consistent with what you told the customer. Check your financial promotions too. Our CONC explainer gives a wider view of the sourcebook.

How MEMA can help

MEMA supports firms applying to become credit brokers and firms adding the permission to an existing authorisation. See our credit broking and limited permission credit broking pages, or compare routes in DIY, fixed-fee and consultancy options.