Home Reversion and Retail Credit Firms

2007 legislation regulated new categories of financial services entity for the first time.  Home reversion firms and retail credit firms were brought within regulation.The 2007 legislation applied the general range of sanctions and regulation applicable to regulated financial firms to retail credit providers and home reversion firms

A home reversion firm is a business providing and entering home reversion agreements.  A home reversion agreement is a transfer by the owner of a home to a reversion entity for a discounted income with the owner retaining a right to live in the property until specified events are from death or cessation of ability to live in the property.

A retail credit firm includes persons designated under the Consumer Credit Act and persons whose business consists wholly or partly of providing credit to natural persons,  other than designated professional clients under the legislation.  The entities prescribed under the Consumer Credit Act were broadly the main, non-bank credit institutions.

 

The legislation allowed the Minister to designate certain non-bank credit institutions.  Such institutions were designated on a case-by-case basis.  They, in particular, included some of the so-called subprime lenders. Their very limited regulation under the consumer credit act (in terms of the form of business rather than in terms of their business structure and operations) was the motivating factor in bringing them under the umbrella of the legislation.

Retail credit firms exclude persons who are authorised credit intermediaries and regulated financial service providers.  They also exclude where the credit was originally provided by another person, the person to whom or any part of the person’s interest and the credit is directly or indirectly assigned or otherwise disposed of.  This would include the benefit of a loan under a securitisation arrangement and loan transferees, as later became prominent after the financial crisis.

It excluded persons who provide credit on a once-only or occasional basis but only if the provision of the credit does not involve a representation or create an impression whether In advertising, marketing or otherwise that the credit would be offered to other persons on the same or substantially similar terms. There is provision for the exemption of other entities from the legislation.

Exemptions

The Central Bank may exempt persons from requiring an authorisation as a retail credit firm if

• in its opinion the total amount of value of credit to be provided is such that it  is reasonable to assume that the borrower will be in a position to negotiate on equal terms or obtain appropriate legal and financial advice
• or the person is of a class exempted from holding a banking licence under a certain provision of the central bank act or
• the person who is one who provides credit solely for charitable or public purposes at a rate favourable relative  to those currently commercially available.

The granting of an exemption on the above grounds must not be inconsistent with the proper and orderly regulation of the provision of credit and protection of customers of retail credit firms. The exemption may be granted subject to such conditions as the Central Bank determines.  Additional conditions may be imposed.  The conditions may be varied or revoked.

 

Obligations

A retail credit firm must satisfy the bank in relation to its constitution, the probity, and  competence of its directors and managers, the suitability of its shareholders and owners and its organisational structure.

The organisational structure must be such as being capable of being supervised.  It must satisfy the bank that it has the requisite procedures to supply information necessary for the Central Bank’s supervisory functions.

The conduct of the firm must be such that its financial resources conduct of business and other matters must be such the bank considers necessary in the interest of the proper and orderly regulation of the authorised firm.

Requirements may be imposed on the terms of the authorisation.  This includes

• conditions regarding the supervision and regulation of the firm
• provisions to protect customers and potential customers,
• conditions regarding its affairs,
• information requirements in terms of displaying notices.

Provision may be made in relation to

• the training, qualification, and competence of staff and officers,
• provision of information to the bank,
• compliance with codes of practice.