OFT consults on credit licence fee structures

141/09 17 December 2009

The OFT has today launched a consultation on moving towards a new approach to the setting of fees for consumer credit licences.

Under the current fees structure the only cost distinction made between businesses applying for or renewing their licence is whether the applicant is either a sole trader, or a corporate body or partnership. The OFT believes this system is too simplistic to take account of the different costs arising from its risk-based approach to regulation and that a new structure is needed to ensure fees are fair and proportionate.

The consultation proposes a number of criteria that might be chosen to differentiate between classes of applicant. These include:

type of business
type of credit activity
number of categories applied for
size of credit business, and
overall size of business.

The OFT is also asking for comments on the current circumstances where applications are exempt from charge, such as for charitable debt advice agencies, and whether these should continue or be amended.

Respondents have until 11 March 2010 to respond to the consultation. The OFT will take account of the responses in its report to the Secretary of State for Business, Innovation and Skills. It will then develop one or more revised charging structures which it will test during 2010/11, before seeking Government's agreement to its preferred option. The new fee structure will come into force from April 2011.

NOTES

1. The consultation document - Review of Consumer Credit Licensing Fees - can be downloaded from the consultation page.

2. The Consumer Credit Act 1974 (the Act) requires most businesses that offer goods or services on credit or lend money or are involved in activities relating to credit or hire to be licensed by the OFT.

3. The Consumer Credit Act 2006 extended the scope of the regime by bringing credit competence into the assessment of fitness to hold a licence. This represents a fundamental change in approach as prior to April 2008 the fitness of a business to hold a licence was determined purely on the basis of its integrity. The OFT focuses its resources in those areas where the risk of consumer detriment is greatest including sub-prime lending, debt collection, debt management, and doorstep lending.

4. Since April 2008, operation of the entire consumer credit regime moved to a self-funding model. This means that all costs incurred in delivering the regime must be recovered through the fees paid for credit licences. The licensing fee level is intended to ensure that all OFT licensing related consumer credit activity is cost neutral. That is, income generated through licensing equals expenditure across the licensing regime.

5. The OFT can introduce new fees for its credit licensing activities at any time, but needs the prior agreement of the Secretary of State and of the Treasury.

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