The OFT has published guidance on how and when it will use its new power to suspend consumer credit licences. Section 108 of the Financial Services Act 2012 amends the Consumer Credit Act 1974 by adding new sections 32A (mechanics of the new power), 32B (duration of the suspension) and 34ZA (the licensee’s right to representations).
Until now, licensees subject to revocation proceedings could continue to operate pending the outcome of all appeals. However, the new power will enable the OFT to suspend all aspects of the business covered under the licence with immediate effect or on a date specified in a notice. This means that any consumer credit activity undertaken by the suspended licensee during the period of the suspension would be unlicensed, and thus illegal – and potentially (if applicable to the activity in question) unenforceable.
The OFT must issue a notice under section 32A(2) informing the licensee that the licence is to be suspended, setting out the period of the suspension, and giving reasons. Licensees have the right to make representations within 21 days to an independent OFT adjudicator, who may uphold, revoke or vary the suspension, and may then appeal by way of rehearing to the First Tier Tribunal.
In considering whether a licence should be suspended, the OFT will have regard to the following three elements of the statutory test for suspension:
- an urgent need to protect consumers – there must be an imminent risk of harm to consumers, and/or ongoing detriment likely to continue or escalate if suspension action is not taken: a pattern of violent, dishonest or otherwise harmful behaviour, consumer complaints and/or additional, more recent convictions would be likely to trigger and urgent need.
- that need must relate to potential for harm – the OFT will consider the seriousness of the harm/risk of harm, having regard to the nature of the business, the business model, the nature of the harm (evidence of violence or of economic harm such as theft, fraud or financial hardship, or the targeting of vulnerable consumers with harmful practices), proportionality, the quality of the evidence, and whether the breach/non-compliance is repeated.
- whether suspension is the necessary and proportionate response – amongst a combination of factors, the OFT will consider the licensee’s responses to complaints, requests and warnings.
A decision to suspend with immediate effect may be made where the harm to which consumers are exposed is of such magnitude as to outweigh the desire to provide the licensee with a short period to make representations before the suspension takes effect. This will be most likely where there is a risk of physical harm, or of mental distress, financial hardship or theft or fraud. The OFT is able to impose a suspension at any stage during the currency of a licence, including during the course of revocation proceedings or appeals therefrom, should new or clearer facts emerge, but will use the same process.
Where the OFT judges that it is proportionate to authorise some licensed activity to continue for a period of time after suspension – in order to facilitate the winding up or transferring of the business – it may use the power in section 34A of the Consumer Credit Act 1974 to allow some consumer accounts to be serviced for a period of time after suspension in order to allow an orderly wind-up of the business. The OFT may authorise the licensee to undertake certain licensable activities (whether limited to a particular category or in a particular manner) for a set period, as necessary to allow the business to be transferred or wound up, and may impose requirements which must be complied with as part of the authorisation. A failure to comply with such requirements may result in the authorisation being terminated.
The OFT is required to maintain a public register (the Consumer Credit register) of decisions made under the licensing regime. Decisions to suspend a licence will be noted on the public register from the date they take effect. This will either be immediately or from the specified date in the notice, depending on which route is taken.