Is it CCA or FSMA?
Dual regulation - Proposed changes to Consumer Credit Act relating to mortgage contracts and consumer credit agreements
September 2005
HM Treasury (HMT) and the Department of Trade and Industry (DTI) have published an informal discussion paper and proposed Statutory Instrument (SI) to address industry concerns over dual regulation of certain credit agreements under both the Consumer Credit Act (CCA) and Financial Services and Markets Act (FSMA). This paper follows discussions between HMT, DTI, FSA and the Office of Fair Trading. The paper addresses two particular situations where there is potential for regulatory overlap - modified agreements and credit brokerage.
Under section 82 of the CCA where an existing credit agreement is varied or supplemented by a new contract the existing credit agreement and the later modifying agreement are to be treated as one combined agreement. If the existing credit agreement is regulated under the Consumer Credit Act (CCA), then the modifying agreement also is to be treated as a regulated agreement.
In October 2004 first mortgage regulation in relation to residential has been introduced for certain specified mortgage contracts under and by virtue of the (FSMA). Modifications to existing credit agreements, which previously would have been regulated under the CCA, for example further or additional advances, could well be considered and result in themselves being Regulated Mortgage Contracts (RMC) and thereby become regulated under the FSMA. That would result in 2 sets of legislation being applicable to the same agreement or agreements. And to top that there are proposed alterations to the CCA afoot which amongst other things will result in the abolition of the existing 25,000 upper limit for regulation under the CCA.
None of the above will relate to agreements which are fundamentally commercial agreements nor to companies borrowing money. The CCA and the FSMA simply have no application there.
However the statutory instrument proposed to alter section 82 of the CCA would mean that the RMC would be regulated by the FSMA and the original consumer credit agreement would still fall to be controlled by the provisions of the CCA.
The two agreements would thereby be treated as separate and distinct agreements and contracts, rather than being combined into a single agreement.
Lenders would nevertheless be governed in such trading and have to comply with the detailed regulations set out in both set of legislation and the relevant regulatory framework for each agreement.