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CONC 4.3 Pre-contractual requirements and adequate explanations: P2P agreements

Application

CONC 4.3.1R

This section applies to a firm with respect to operating an electronic system in relation to lending3.

CONC 4.3.2R

This section (apart from CONC 4.3.6 R) does not apply to:

  1. (1)

    an agreement under which the lender provides the prospective borrower with credit which exceeds £60,260, unless the agreement is a residential renovation agreement2; or

  2. (2)

    an agreement secured on land.

CONC 4.3.3G

For the agreements referred to in CONC 4.3.2 R, a firm should consider whether it is necessary or appropriate to provide explanations of the matters in CONC 4.5.3R (2), in particular, a firm should consider highlighting key risks to the borrower including the consequences of missing payments or under-paying, including, where applicable, the risk of repossession of the borrower's property.

[Note: section 55A(6) of CCA and paragraph 3.1 of ILG]

[Note: Until the end of 30 September 2014, transitional provisions apply to CONC 4.3.3 G: see CONC TP 4.1]

Pre-contractual requirements

CONC 4.3.3AR
  1. (1)

    3This rule applies if the lender, or the prospective lender, under a P2P agreement is, or would be, carrying on by way of business the regulated activity of entering into a regulated credit agreement as lender by entering into the agreement.

  2. (2)

    Any fee to be paid by the borrower to the operator of an electronic system in relation to lending must be agreed between the borrower and the operator, and that agreement must be recorded in writing or other durable medium before the P2P agreement is entered into.

  3. (3)

    The operator of an electronic system in relation to lending must disclose to the lender the fee, if any, for its activity payable by the borrower for the purpose of enabling the lender to calculate the annual percentage rate of charge for the P2P agreement.

[Note: article 21(b) and (c) of the Consumer Credit Directive]

Adequate explanations

CONC 4.3.4R
  1. (1)

    Before a P2P agreement is made, the firm must:

    1. (a)

      provide the prospective borrower with an adequate explanation of the matters referred to in (2) in order to place the borrower in a position to assess whether the agreement is adapted to the borrower's needs and financial situation;

    2. (b)

      where the P2P agreement is not a non-commercial agreement, advise the prospective borrower:

      1. (i)

        to consider the information which is required to be disclosed under section 55(1) of the CCA; and

      2. (ii)

        where the information is disclosed in person, that the borrower is able to take it away;

    3. (c)

      provide the prospective borrower with an opportunity to ask questions about the agreement; and

    4. (d)

      advise the prospective borrower how to ask the firm for further information and explanation.

  2. (2)

    The matters referred to in (1)(a) are:

    1. (a)

      the features of the agreement which may make the credit to be provided under the agreement unsuitable for particular types of use;

    2. (b)

      how much the borrower will have to pay periodically and, where the amount can be determined, in total under the agreement;

    3. (c)

      the features of the agreement which may operate in a manner which would have a significant adverse effect on the borrower in a way which the prospective borrower is unlikely to foresee;

    4. (d)

      the principal consequences for the borrower arising from a failure to make payments under the agreement at the times required by the agreement, including legal proceedings and, where this is a possibility, repossession of the borrower's home; and

    5. (e)

      the effect of the exercise of any right to withdraw from the agreement and how and when this right may be exercised.

  3. (3)

    Except where (4) applies, the adequate explanation and advice in (1) may be given orally or in writing.

  4. (4)

    Where the matters in (2)(a), (b) or (e) are given orally or to the prospective borrower in person, the explanation of the matters in (2)(c) and (d) and the advice required in (1)(b) must be given orally to the borrower.

  5. (5)

    Where this rule applies to a borrower-lender agreement to finance the making of payments arising on or connected with the death of a person, this rule applies to the agreement to the extent the payments are:

    1. (a)

      inheritance tax chargeable in the UK on the death of any person;

    2. (b)

      fees payable to a court:

      1. (i)

        in England, Wales or Northern Ireland on an application for a grant of probate or of letters of administration;

      2. (ii)

        in Scotland, in connection with a grant of confirmation; and

      3. (iii)

        in the UK, on an application for resealing of a Commonwealth or colonial grant of probate or of letters of administration; and

    3. (c)

      payments in England, Wales or Northern Ireland to a surety in connection with a guarantee required as a condition of a grant of letters of administration or payments in Scotland to a cautioner in connection with a bond of caution required as a condition of issuing a grant of confirmation.

      [Note: section 74(1F) of CCA and SI 1983/1554]

      [Note: Until the end of 30 September 2014, transitional provisions apply to CONC 4.3.4 R: see CONC TP 4.1]

CONC 4.3.5R

Where CONC 4.3.4 R applies to a firm, the firm must comply with the rules, and observe the guidance, in CONC 4.2 to the same extent as if it were the lender under an agreement to which those rules apply.

[Note: Until the end of 30 September 2014, transitional provisions apply to CONC 4.3.5 R: see CONC TP 4.1]

CONC 4.3.6R

Before a P2P agreement which is secured on the borrower's home is made, a firm must in a prominent way give the following warning:

“YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT”

CONC 4.3.7G

1For the purposes of CONC 4.3.6R, a warning will not be treated as prominent unless it is presented in such a way that it is likely that the attention of the average customer would be drawn to it.

P2P agreements where there is a guarantor etc

CONC 4.3.8R
  1. (1)

    1This rule applies if:

    1. (a)

      a firm with permission to carry on the activity of operating an electronic system in relation to lending is to facilitate the entry into a P2P agreement;

    2. (b)

      the prospective borrower is an individual; and

    3. (c)

      an individual other than the borrower (in this rule referred to as “the guarantor”) is to provide a guarantee or an indemnity (or both) in relation to the P2P agreement.

  2. (2)

    The firm must, before the P2P agreement is made, provide the guarantor with an adequate explanation of the matters in (3) in order to place the guarantor in a position to make an informed decision as to whether to act as the guarantor in relation to the P2P agreement.

  3. (3)

    The matters are:

    1. (a)

      the circumstances in which the guarantee or the indemnity (or both) might be called on; and

    2. (b)

      the implications for the guarantor of the guarantee or the indemnity (or both) being called on.

  4. (4)

    For the purposes of (2), the rules and guidance listed in (5) apply as if:

    1. (a)

      references to the customer were references to the guarantor;

    2. (b)

      references to CONC 4.2.5R were references to this rule; and

    3. (c)

      references to the regulated credit agreement were references to the P2P agreement.

  5. (5)

    The rules and guidance are:

    1. (a)

      CONC 4.2.6G to CONC 4.2.7AG;

    2. (b)

      CONC 4.2.9R and CONC 4.2.10R;

    3. (c)

      CONC 4.2.12R to CONC 4.2.14G; and

    4. (d)

      CONC 4.2.16G to CONC 4.2.21G.

  6. (6)

    For the purposes of this rule, a guarantee does not include a legal or equitable mortgage or a pledge.