Legal Article - Business Law

Consumer Credit Licence Requirements

Most motor dealers will need a Consumer Credit Licence. Without one it would be illegal to sell the vast majority of cars on credit.
Most commonly motor dealers act as credit brokers i.e. they introduce customers to sources of credit; through a finance agreement they arrange a 3 way link up of customer trader finance company.

The customer receives a car from the dealer and credit from the finance company. The dealer receives money partly from the customer as a deposit but the larger part from the finance company.

The finance company will often legally own the car until the customer has paid them the loan back with interest over monthly/weekly payments.

We get many queries from clients about letting cars go out when the customer has signed the car finance documents and then the finance company deciding to not proceed with the deal. The customer ends up with the free loan of a car.

The position is that any party can stop the finance deal going through prior to all three parties signing the agreement. Whenever this happens the customer must be given the deposit and any part exchange vehicle back.

If the part exchange vehicle has been sold then the dealer must return the agreed part exchange value. This leads to an extra difficulty when the dealer has over allowed on the part exchange vehicle.

Furthermore the insurance position must be considered when a customer takes a vehicle before the finance company pays out. Again we have had situations where a vehicle is not insured if the customer drives it prior to the sale.

In a smaller number of cases the dealer will actually be the creditor thereby cutting out the finance company. Whether a credit broker or creditor, the motor dealer must hold a Consumer Credit Licence to trade in that way.

Consumer Credit Licences are obtained for a fee from the Office of Fair Trading (OFT) in London (not Trading Standards Departments). Needless to say it is very important to acquire a licence, and secondly, keep it. 

The OFT keep careful watch over potential and current licences. If they have received notification of criminal offences or a large number of consumer complaints then they can turn down a licence application or decide that a licence should be revoked.

There is an appeals procedure but it is wise not to get to that point if at all possible. Furthermore if you are in business with or are related to someone else who has an adverse record then the OFT can use those factors against you.

As well as stipulating the applicants name the licence will also contain particular trading names as requested. No others must be used. It will also contain the categories of activities such as credit brokerage, debt collecting etc. Any changes on the licence must be notified to the OFT.


Published: 16 Mar 2011


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