Credit unions carrying out consumer credit activities

Conditional Sale (CS)

Under a CS agreement, money is lent to purchase goods or land (eg a white good or car) and the purchase price, or part of it, is payable by instalments. The member doesn't own the asset until the conditions as to the payment of instalments (or other conditions specified in the agreement) have been made. Once the conditions have been fulfilled, (eg final payment of instalments), ownership passes to the member.​ 

Hire Purchase (HP)

HP is similar to CS in that ownership of the goods doesn't pass to the member for the duration of the loan. However, at the end of an HP contract the member has the option to purchase the goods and become the legal owner of the asset (providing the terms of the agreement have been complied with by the member).

We'll use your RBP to understand your firm’s business and proposed activities. It should be detailed and comprehensive, otherwise your application may take longer.

Refer to our sample business plan[13] for the sections we typically expect an applicant to include, and make sure you consider the following areas:

Please complete all the forms below, which you can access on our Connect[11] system:

• variation of permission application form 
• Form A and Statement of Responsibilities (SOR) 
• individuals forms (if you wish to change your Senior Management Function (SMF) holders or their SORs)
• approved persons forms[15], if you wish to make changes in this area
• checklist and declaration form 
• core details 
• fees and levies 

We expect you to submit the following policies and procedures as part of your application.

Each document should explain how the policies are enacted, not just describe what they are. And note that you must submit complete and final documents – we won't review drafts​. 

Creditworthiness and affordability
Detail how your firm will carry out an affordability and creditworthiness assessment of customers with appropriate consideration to the size, scale and risk of the activity that is being proposed. Importantly, your firm will need to update policies and criteria in order to be CONC[6] compliant (such as CONC 5.2A[16]). 

Arrears, forbearance and collections
Explain what happens when a payment is missed, what forbearance is offered to customers, and under what circumstances. Bear in mind the requirements in CONC 7[17], such as CONC 7.3[18].

Vulnerable customers
Explain how your firm identifies vulnerability, and what steps it takes once vulnerability has been identified, such as the requirements under CONC 7.2.1R(2)[19]. 

Complaints
Spell out what the procedure is when a complaint is received, and what root cause analysis is conducted to prevent future complaints.

Compliance monitoring plan (CMP)
Explain who has oversight of which regulatory tasks, how often risks are monitored and what management information (MI) is used to track compliance.

Governance
Include an organisation chart detailing who is responsible for which specific areas of the business, and provide details of any committees and governance structures that oversee particular aspects of governance.

Financial promotions
Explain how financial promotions will be used, whether third parties will be involved, and detail how your firm will ensure promotions are clear, fair and not misleading (including detail on signing off Section 21 Financial Promotions where appropriate).

Consumer Duty implementation and/or management plan
Set out what the main benefits and drawbacks of the products you offer to your target market are, how you'll ensure fair value for different groups of customers, how value assessments are evidenced and documented, and how interest rates and charges are benchmarked against peers. 

Financial crime framework (including anti-money laundering policy)
Explain how you identify suspicious transactions, and what next steps you take when such transactions are identified.

Financial information
Provide a complete set of your firm’s financials, including 36-month financial forecasts. We'll also need to see historical accounts. Find out how to prepare your firm's financial information[20], which includes a financial analysis template.

We may ask for other documents that are relevant to your application, including (but not limited to):

• risk management framework
• outsourcing policy 
• wind-down plan 
• business continuity plan 
• pre-contract information 
• regulated credit agreements and regulated hire purchase agreements

This includes helping a borrower with their debt problems by taking over their obligation to discharge a debt in return for payments; or negotiating on their behalf with a creditor.

Whether an arrangement with a borrower amounts to a promise by the credit union to perform a borrower’s obligations under a loan agreement will need to be determined on a case-by-case basis.

It's unlikely that a credit union will be debt adjusting simply because it makes a loan to a member for the purpose of refinancing the member’s existing debts and pays the loan advance directly to the member’s creditors to pay off those debts.

This includes giving advice to a borrower about debts due under any credit agreement or consumer hire agreement.

Note that debt adjusting and debt counselling are only regulated when the activity is carried out in respect of credit agreements or consumer hire agreements that a borrower has entered into with other lenders.

This means that if your credit union is the lender under the agreement concerned, you don't need to have permission for the activities of debt adjusting or debt counselling.

This includes:

• obtaining information on behalf of a borrower about their financial standing – for example, by asking a credit reference agency
• seeking to have this information altered or corrected
• advising a borrower on how they can obtain this information themselves, or get it amended themselves

Obtaining a credit reference report as a part of your credit union’s assessment of the creditworthiness of a borrower doesn't, in itself, constitute providing credit information services.

Consumer credit activities are only regulated if they're carried on ‘by way of business’.

This is a test that depends on the facts of each case. A credit union might not be carrying on an activity ‘by way of business’ if it only carries on the activity:

• on an occasional basis 
• without payment
• not in connection with other regulated consumer credit activity

Read more about the ‘by way of business’ test in PERG 2.3[22].