Name
Global FinTech Guide
Country _ Name
United Kingdom
SectionTitle
Loan services / factoring / loan broking / finetrading
Body
FinTechs belonging to this category act as a loan creditor (even short and very short-term loans), are broking loans or receivables or conduct factoring of loans, which were given to private or business customers. In this business area you also find “peer-to-peer” (P2P) services, in which FinTechs enable a multitude of users to give loans (and brokered by the FinTech-platform) to other users or companies.

Finetrading is hereby a financial service of FinTechs, where they buy due receivables and grant the debtor an extension of payment time.

As an ancillary service some FinTechs offer alternative credit assessment services to check the solvency of a borrower.

Introduction

Attitude of the country towards loan-giving-, factoring-, brokerage-, finetrading- and ancillary services

There are no plans to bring lending to companies or exempt business lending into regulation.

There have been social and regulatory concerns about the fast expansion of consumer credit (often at high costs), particularly in the context of economic pressure on UK households due to high inflation, rising interest rates and decline in real wages.
 
In 2014 the FCA took action to address consumer harm by high-cost short-term credit (“HCSTC”) lenders (also known as “Payday Loans”) by capping interest and fees at 0.8% per day of the amount borrowed, limiting default fees to £15 and limiting the amounts that borrowers could be required to pay in fees and interest to 100% of the amount borrowed. This led to the collapse in 2018 of Wonga, the UK’s biggest payday loan company, which had previously been charging APRs of more than 5,000%. Payday lending was seen as presenting substantial risks of consumer harm, and was often a “distress purchase” of last resort by consumers facing considerable financial difficulties and unable to access mainstream sources of credit.

“Buy Now Pay Later” credit agreements (“BNPL”) are not currently regulated (because they fall within the exemption for fixed-sum credit repayable in twelve or fewer payments over less than 12 months). However, the expansion of the BNPL market (which nearly quadrupled in 2020 to £2.7 billion) has given rise to concerns. A recent FCA review found potential harm to consumers in the contracts of market participants such as Clearpay, Klarna, Laybuy and Openpay. Those companies agreed to change their contract terms, and Clearpay, Laybuy and Openpay also agreed to voluntarily refund customers that had been charged late payment fees in certain circumstances. The FCA considered their action to be “at the edge of our remit as a regulator” but demonstrated that the FCA will apply pressure on unregulated firms where it considers that there is potential harm to consumers.

Legal affairs

Obligations and requirements to provide loan-giving-, factoring-, brokerage-, finetrading, and ancillary services described above

Credit activities (lending, factoring, broking, finetrading) with corporate entities is unregulated, and so no FCA authorisation is required.

Only “consumer credit” activities are regulated: lending or providing other types of credit (including hire) to a “relevant recipient of credit” (an individual, a partnership consisting of two or three persons not all of whom are bodies corporate, or to an unincorporated body of persons that does not consist entirely of bodies corporate and is not a partnership).

There are extensive exemptions from regulation based on the nature of the agreement, the nature of the lender, the number of repayments to be made, the total charge for credit and the nature of the borrower. The following are examples of some of the main exemptions:
  • Credit agreements

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