The Financial Conduct Authority (FCA) has warned firms giving mortgage advice that they may also need consumer credit permissions. The issue arises where an adviser recommends or suggests that a client consolidates one or more unsecured debts into their mortgage. This could be regarded as debt counselling, an activity that requires consumer credit permissions.

Even if the adviser simply mentions debt consolidation as one of a number of options available to the client, then the guidance provided by the adviser could still be classed as debt counselling. Here, the FCA’s guidance says that:

“In general terms, simply giving balanced and neutral information without making any comment or value judgement on its relevance to decisions which a debtor may make is not advice. The provision of purely factual information does not become regulated advice merely because it feeds into the debtor’s own decision-making process and is taken into account by him.

“In the FCA’s opinion, however, such information is likely to take on the nature of advice if the circumstances in which it is provided give it, expressly or by implication, the force of a recommendation.

“For example the adviser may provide information on a selected, rather than balanced and neutral, basis that would tend to influence the decision of the debtor. This may arise where the adviser offers to provide information about certain ways of liquidating the debtor’s debts that contain features specified by the debtor. The adviser may then exercise discretion as to which course of action to highlight.”

The regulator has previously highlighted the need for financial advisers that give investment advice to hold debt counselling permissions. Advisers may frequently recommend that clients pay off certain debts before committing capital to an investment.

The FCA defines debt counselling as:

“Advice given to a borrower (or hirer) about the liquidation of a debt due under a credit agreement (or consumer hire agreement).”

For the purposes of the above definition, “liquidation” includes:

• Paying off the debt in full as scheduled
• Agreeing a suspension in repayment of the debt
• Agreeing a re-scheduled payment plan
• Writing off the debt
• Agreeing reduced repayments
• A third party taking on another party’s debt obligations
• Incorporating the debt into a bankruptcy order, a voluntary arrangement or a debt relief order

The activity is only regarded as debt counselling if the advice given relates to a specific individual and to a specific debt.

Existing authorised firms can apply to add permissions by submitting a Variation of Permission application via the Connect system on the FCA website.
Firms that are in any doubt as to what permissions they need are urged to seek expert advice.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.