If you are interested in setting up a premium rate telephone service aimed at people with debt or credit issues, this is possible under telecoms regulations. However, this type of service does require prior permission before you can start operations.
Shown below is the procedure to set up such a premium rate telephone service.
Consumer Credit Services – Introduction
Service providers seeking clarity about the application of any Code provision to a particular service are strongly advised to contact the Executive before starting to operate the service.
Consumer Credit Services: The Need for Prior Permission
PhonepayPlus, under paragraph 7.7 of the Code of Practice, has decided that consumer credit services, both recorded and live, will require prior permission before they can operate.
a) Definition of “consumer credit services”
For PhonepayPlus’ purposes, “consumer credit services” are defined as services which appear to PhonepayPlus to offer one or more of the following facilities:
1. consumer credit business
2. consumer hire business
3. credit brokerage
4. debt adjusting and debt counselling
5. credit repair services, giving advice on amending credit records including, for example, the removing of County Court Judgements Services 1 to 5 correspond with business categories ‘A’ to ‘D’ on a Standard Consumer Credit Licence and are to be construed accordingly.
b) Services which are not included in the definition
Services which offer debt collecting or credit reference agency facilities (business categories ‘E’ and ‘F’ on a Standard Consumer Credit Licence) are not included in this definition. However, they will still require prior permission if they feature live conversation or operate at a higher tariff. Service providers should also note that the definition of a consumer credit service extends to services for sole traders and partnerships, but not to services exclusively for limited companies.
Advice to Applicants Wishing To Operate Consumer Credit Services
a) Consumer credit and consumer hire businesses
This fact sheet sets out in detail how PhonepayPlus will treat applications for credit brokerage services. However, applicants wishing to operate other types of service for arranging loans or hire purchase agreements should note that their applications will be treated in a similar way.
b) Credit brokerage services
• Concerns about loan brokerage services
The Office of Fair Trading (OFT) advises that brokers may not claim that loans are guaranteed. The decision on whether or not a loan application is granted should rest with the lender and should be subject to a proper assessment of the borrower’s creditworthiness and ability to repay. The application may be rejected by the lender, or may be granted in terms other than those sought.
Under the Consumer Credit Act 1974, the borrower is entitled to a refund (less £5.00) of the fee paid to the credit broker if for any reason the borrower does not enter into a loan agreement within six months of an introduction to a source of credit. The Office of Fair Trading has made clear that refunds should be made promptly and without the borrower having to request this. The borrower may, under contract law, be entitled to a full refund if the broker fails to make an introduction at all, or otherwise fails to provide the services offered.
PhonepayPlus considers that similar principles should apply to the use of premium rate brokerage services, where the cost to the borrower extends beyond the fee paid directly to the credit broker. PhonepayPlus will therefore generally limit the cost to a caller who does not proceed to take out a loan within six months of the call (or who exercises his or her statutory right to cancel a loan agreement) to £5.00.
Other conditions of operation are likely to be imposed which are designed to give callers information about the service on offer and to dissuade the least creditworthy from calling the service. A list of these conditions is set out below, but other conditions may be imposed on a case-by-case basis.
Information Which Must Be Provided By the Applicant
In order to apply for prior permission to operate a credit brokerage service, the following information should be provided to support the application:
• Consumer Credit Licence
• A copy of the broker’s Consumer Credit Licence must be provided, containing all necessary permissions to operate. The Licence must state the trading name of the broker.
• Details of promotion
• Sample promotional material must be provided. Promotions must comply with the promotional requirements set out below.
• The applicant must provide evidence that the advertisement complies with all relevant legislation and, where appropriate, with the Office of Fair Trading’s Guidelines on Non-Status Lending. This could be provided by the applicant’s local Trading Standards office, the Finance Industry Standards Association, or by any other third party recognised by PhonepayPlus as being competent to do this. Applicants should note that a fee might be charged for such a service.
Details of loans
• Details of the proportion of callers predicted to proceed to take out a loan (the
“acceptance rate”) should be provided. Evidence substantiating this forecast must be subsequently provided.
• Details of the ranges of interest rates available must be provided, together with the ‘typical’ APR at or below which 50% or more of the business is expected to be provided.
• Details of the lenders with whom the broker expects to place business arising from the calls must be provided, together with evidence of the lenders’ consent to the broker operating the premium rate service.
• Script
• The script to be used by operators must be provided, including any forms to be filled out by operators.
• Conditions of operation that are likely to be imposed
• A £5.00 maximum cost for callers who do not proceed to take out loans within six months of the call, or who exercise their statutory right to cancel a loan agreement. A service provider might propose to achieve this by, for example:
• limiting the cost of calls to £5.00, or
• implementing a system of refunding callers who do not proceed to take out loans within six months of the call, or who exercise their statutory right to cancel a loan agreement. The refund should not be less than the amount by which the cost of the call to the caller has exceeded £5.00. Furthermore, PhonepayPlus would expect the availability of such refunds to be promoted both at the beginning of the service and in all promotional material, and it should not be necessary for callers to have to provide a copy of their telephone bill in order to obtain a refund, or
• structuring the service so that sufficient information is obtained to determine whether or not a caller will proceed to take out a loan before the cost of the call reaches £5.00. However, a similar system to that described above would need to be implemented for refunding callers who exercise their statutory right to cancel a loan agreement.
• The identity of the lenders with whom the loans have been placed should be identified and the APR given in each case.
• A 15-minute maximum call duration.
• If a number of telephone calls to the service are required, the paragraphs above shall refer to the cumulative cost to callers of the telephone calls.
• Details of the acceptance rate and the number of offers of loans accepted by borrowers must be maintained, and provided to PhonepayPlus on request, together with substantiating documentation.
• The promotional requirements (below).
• Promotional requirements
• To avoid being in breach of paragraph 5.4.1 of the Code of Practice, service providers should ensure that:
• Only one trading name should be used in relation to premium rate services.
• The trading name should not be misleading.
• Promotions should not be targeted at non-status borrowers (as defined in the Office of Fair Trading’s Non-Status Lending Guidelines), or otherwise at people who have low or impaired credit ratings or who have already been refused loans.
Promotions should not suggest, either expressly or by implication, that loans are available regardless of a person’s income or other financial circumstances, or their credit rating, or regardless of whether they have been refused a loan.
• Callers should not be directed to the service from other brokers or lenders where the person has been refused a loan or has a low or impaired credit rating.
• Promotional material must comply with anything required by law, and where appropriate, the Office of Fair Trading’s Guidelines on Non-Status Lending, and must:
• if an APR is shown, be accurate and representative of the business being advertised,
• state the trading name of the broker (as it appears on the Consumer Credit Licence),
• state the total maximum cost of the call in addition to the numeric cost per minute,
• not contain a statement that loans are guaranteed,
• not contain a statement emphasising the speed with which loans can be guaranteed,
• if the service is live, state the full address of the service provider and hours of operation.
Below are examples of statements required in promotional material by law, or under the Office of Fair Trading’s Guidelines on Non-Status Lending:
• If secured loans or mortgages are on offer, a prominent statement in the prescribed format that the borrower’s home is at risk if they do not keep up repayments on a mortgage or other loan secured on it.
• A statement that written quotations are available on request.
• A statement that the APR is variable (if applicable).
• A statement that the credit broker is a credit broker.
• If the broker is acting for only one lender, the name of that lender.
c) Debt adjusting and debt counselling
Given the potential vulnerability of callers, debt adjusting and counselling services are unlikely to be granted prior permission unless the service provider is a member of a recognised industry self-regulatory body.
d) Credit repair services
Given the potential vulnerability of callers, so-called credit repair services are unlikely to be granted prior permission, although applications will be considered on a case-by-case basis. Any applicant wishing to operate a credit repair service will need to provide full and detailed information about their proposed methods for repairing credit records. PhonepayPlus will consult with the Registry Trust and other appropriate bodies about any such proposed method’s efficacy.
e) Advice to applicants wishing to operate debt collection services
Service providers are strongly advised to seek the Secretariat’s advice before setting up services relating to debt collecting. In any event, such services are likely to be in breach of the Code of Practice.
For more assistance and guidance – please visit – www.phonepayplus.org.uk
