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Guernsey’s New Consumer Lending Rules | Walkers


Introduction

This briefing is the second in a series of briefings by Walkers’ on the Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022 (the “LCFL”), and provides an overview of the licensing regime applicable to consumer lending businesses under Part II of the LCFL (a “Part II Licence”). Our first briefing can be found here.

The Guernsey Financial Services Commission (the “GFSC”) has been consulting on draft rules and guidance applicable to all licensees under the LCFL (the “Rules”). The consultation has now closed and we await the final form of the Rules, which are due by the end of 2022. Key aspects of the Rules applicable to the holder of a Part II Licence, which are not yet final and are subject to change, will also be covered in this briefing.

Who will need a Part II Licence?

All businesses that provide or offer consumer credit, or services ancillary to the provision of consumer credit, in or from within the Bailiwick of Guernsey (“Guernsey”) will need a Part II Licence unless an exemption applies. Further, all Guernsey businesses that provide or offer consumer credit, or services ancillary to the provision of consumer credit, anywhere in the world will need a Part II Licence unless an exemption applies.

Carrying out any of these activities without a Part II Licence or an applicable exemption is a criminal offence.

“Consumer credit” includes various loans and other forms of credit provided to individual non-business persons, including personal loans, mortgages, credit cards, and goods and services purchased on credit, hire purchase or with instalment payments. “Services ancillary to the provision of consumer credit” includes assisting a person in taking out credit, introduction services, and credit brokerage. It also includes debt administration to the extent that it may affect the terms or conditions of the provision of credit, e.g. where it leads to a refinancing or restructuring of credit. This briefing focuses on consumer credit.

In all cases, the person obtaining the credit must be an individual acting other than for purposes of their trade, business or profession.

Specific activities requiring a Part II Licence under the LCFL include:

• personal loans, whether secured or unsecured;
• providing credit cards to individuals in their personal (but not business) capacity; and
• mortgages secured against residential real property in Guernsey, provided that the property is owned by the individual borrowing.

What if the business is already regulated?

The Rules clarify that holders of any other licence under other regulatory laws in Guernsey must also hold a Part II Licence in order to undertake activities regulated under Part II of the LCFL. Therefore a bank, for instance, which provides personal loans, mortgages and/or credit cards, will need a Part II Licence in addition to its banking licence.

Are there any exemptions?

Certain exemptions apply. Most notably there is an equivalence-based exemption in respect of businesses regulated in jurisdictions considered to offer appropriate or equivalent protections as those provided under the LCFL regime (such businesses must notify the GFSC and certain conditions apply).

It is expected that the following will be exempt from the licensing requirement:

• a mortgage secured against commercial property in Guernsey;
• a mortgage secured against any real property located outside Guernsey;
• a mortgage secured against residential property in Guernsey where the property is owned by a trust or company, which is also the
borrower;
• a mortgage secured on residential property for the purpose of buy-to-let, development or bridging finance – unless the mortgage is also
secured against the borrower’s family home; and
• a Lombard loan.

Loans or credit where the lender does not charge any interest and fees are not in scope of the Part II Licence regime. For example, if a shop allows a customer to pay for an item in instalments, but the instalments equal the item’s price (i.e. there is no interest or fee for the instalment payments), then there is no consumer credit and the shop does not need a Part II Licence. Late payment interest does not trigger the licensing requirement.

The GFSC also have the discretion to exempt a person from the requirement to hold a Part II Licence, and we await guidance as to the circumstances where the GFSC may do so.

What requirements apply to a holder of a Part II Licence (a “Licensee”)?

Cooling-off period (excluding mortgages)

A Licensee must provide non-mortgage customers with a cooling-off period of at least two weeks during which customers may cancel the credit agreement, subject to the return of any credit, goods, or services provided. Licensees must not charge any…



Read More: Guernsey’s New Consumer Lending Rules | Walkers

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