Credit unions carrying out consumer credit activities

Find out how to notify us or apply for permission to carry out Conditional Sale, Hire Purchase or other types of consumer credit activity.

If your credit union wishes to carry out consumer credit activities, you must have the appropriate regulatory permission to do this lawfully.

You'll either need to:

notify us, or
apply to us to vary your permission

Refer to the list of activities we regulate[1] if you're not sure whether the activities you intend to carry out are regulated consumer credit activities.

If you're not yet authorised as a credit union, find out how to get authorised[2].

New powers for credit unions

Legislation changes[3] in 2023 gave credit unions in Great Britain (but not in Northern Ireland) the power to expand their services by:

entering into conditional sale agreements, as the seller
entering into hire purchase agreements, as the person from whom goods are bailed
providing insurance distribution activities

This page focuses on credit unions in Great Britain that want to undertake any of these newly permitted activities. Further down, there are examples of other types of consumer credit activity which you'll also need our permission to carry out.

Definitions of Conditional Sale and Hire Purchase

Conditional Sale (CS)

Under a CS agreement, money is lent to purchase goods or land (eg a white good or car) and the purchase price, or part of it, is payable by instalments. The member doesn't own the asset until the conditions as to the payment of instalments (or other conditions specified in the agreement) have been made. Once the conditions have been fulfilled, (eg final payment of instalments), ownership passes to the member.

Hire Purchase (HP)

HP is similar to CS in that ownership of the goods doesn't pass to the member for the duration of the loan. However, at the end of an HP contract the member has the option to purchase the goods and become the legal owner of the asset (providing the terms of the agreement have been complied with by the member).

When to notify us

In some scenarios, you can notify us that you intend to begin offering Conditional Sale and/or Hire Purchase services, rather than applying for a variation of permission.

You must already be authorised to conduct the regulated activities of:

entering into a regulated credit agreement as lender (excluding high-cost, short-term credit, bill of sale loan agreements and home-collected credit agreements), and
exercising or having the right to exercise the lender’s rights and duties under a regulated credit agreement (excluding high-cost, short-term credit, bill of sale loan agreements and home-collected credit agreements)

To notify us, please submit a SUP15 notification form[4].

When to apply to us

If you're not authorised to conduct the regulated activities mentioned above, and you've chosen to:

carry on one or more of the financial activities specified in the Financial Services and Markets Act (FSMA)[5] for the benefit of the members of the society, and
pass any necessary rule amendments and submitted these for registration with us, and
offer Conditional Sale or Hire Purchase agreements that are regulated credit agreements

you'll need to apply to us to vary your permission.

Refer to the table below if you need help determining which regulated activities to apply for.

We also have a general page about variation of permission[6] which explains what happens after you submit your application, and how long it may take.

Regulated activities to apply for, and why they're required

Regulated activity to apply for	Why it's required
Entering into a regulated credit agreement as a lender (excluding high-cost, short-term credit, bill of sale loan agreements and home-collected credit agreements)	So that your firm can enter into a new regulated credit agreement with a member – you'll need this for the purpose of the initial entering into of an agreement
Exercising, or having the right to exercise, the lender’s rights and duties under a regulated credit agreement (excluding high-cost, short-term credit, bill of sale loan agreements and home-collected credit agreements)	So that once your firm has entered into a regulated credit agreement, you are able to exercise your rights and duties under that agreement (eg collecting payments, terminating agreements)

How to apply

What to read first

CONC[7] – you'll need to explain how you'll meet your obligations in relation to credit-related regulated activity
COND[8] – you'll need to explain how you'll continue to meet each threshold condition
PRIN[9] – you'll need to explain how your business and products meet the PRIN rules
Our letter[10] about implementing the Consumer Duty in the credit union sector
Recent updates[11] relating to your ability to apply for the new consumer credit activities

Prepare your application

You'll need to submit your application through our Connect[12] system, so make sure you register[13] if you haven't already.

Your application must include your:

regulatory business plan (RBP)
required forms relevant to your business type
other supporting material

The sections below have more detail about what to include.

Regulatory Business Plan (RBP)

We'll use your RBP to understand your firm’s business and proposed activities. It should be detailed and comprehensive, otherwise your application may take longer.

Refer to our sample business plan[14] for the sections we typically expect an applicant to include, and make sure you consider the following areas:

Background	State the aims and objectives of your firm and why you're applying for this type of authorisation.
Business to be undertaken	Explain where your firm will fit within the market and how your products and services compare to competitors. This should include: the types of business your firm intends to be involved in (including, for example, your target market and customer profile) and how your products/services will be distributed what the details of the product(s) you wish to offer are, eg the length and size of loans and the interest rate charged whether your firm makes use of Continuous Payment Authorities (CPAs), and how this is used appropriately
Governance	Provide an overview of your firm’s governance arrangements, including board composition and any board sub-committees.
Staff	Provide an organisation chart that shows your key staff, including their roles and responsibilities. Explain the rationale for the appointment and suitability of members of the governing board, the compliance officer and other approved persons[15]. Describe the background and experience of everyone performing significant, influence-controlled functions such as directors or senior managers. Explain how staff will be adequately trained to assess loan applications and what Quality Assurance measures you have in place.
Outsourcing	Explain what areas of the business are going to be outsourced and how your firm will oversee and monitor its outsourced activities. You should specifically check: if you're using an incumbent third-party system provider, that the system can appropriately deal with the product changes. For example, we're aware of an issue with respect to one software provider which has resulted in customers being overcharged interest if customers are introduced or referred to your credit union by a third-party, whether permission to conduct credit broking activities are also be required by the introducer firm. Understanding whether or not credit broking activities are required can be complex, so we'd expect you to demonstrate that you've received professional guidance on this if introductions are to be made via third-parties
Systems and controls / Risk Management	Consider how your firm will identify and manage conduct risks. Provide an overview of your firm’s financial crime controls, anti-money laundering procedures and due diligence processes.

Forms required

Please complete all the forms below, which you can access on our Connect[12] system:

variation of permission application form
Form A and Statement of Responsibilities (SOR)
individuals forms (if you wish to change your Senior Management Function (SMF) holders or their SORs)
approved persons forms[16], if you wish to make changes in this area
checklist and declaration form
core details
fees and levies

Other supporting material

We expect you to submit the following policies and procedures as part of your application.

Each document should explain how the policies are enacted, not just describe what they are. And note that you must submit complete and final documents – we won't review drafts.

Creditworthiness and affordability
Detail how your firm will carry out an affordability and creditworthiness assessment of customers with appropriate consideration to the size, scale and risk of the activity that is being proposed. Importantly, your firm will need to update policies and criteria in order to be CONC[7] compliant (such as CONC 5.2A[17]).

Arrears, forbearance and collections
Explain what happens when a payment is missed, what forbearance is offered to customers, and under what circumstances. Bear in mind the requirements in CONC 7[18], such as CONC 7.3[19].

Vulnerable customers
Explain how your firm identifies vulnerability, and what steps it takes once vulnerability has been identified, such as the requirements under CONC 7.2.1R(2)[20].

Complaints
Spell out what the procedure is when a complaint is received, and what root cause analysis is conducted to prevent future complaints.

Compliance monitoring plan (CMP)
Explain who has oversight of which regulatory tasks, how often risks are monitored and what management information (MI) is used to track compliance.

Governance
Include an organisation chart detailing who is responsible for which specific areas of the business, and provide details of any committees and governance structures that oversee particular aspects of governance.

Financial promotions
Explain how financial promotions will be used, whether third parties will be involved, and detail how your firm will ensure promotions are clear, fair and not misleading (including detail on signing off Section 21 Financial Promotions where appropriate).

Consumer Duty implementation and/or management plan
Set out what the main benefits and drawbacks of the products you offer to your target market are, how you'll ensure fair value for different groups of customers, how value assessments are evidenced and documented, and how interest rates and charges are benchmarked against peers.

Financial crime framework (including anti-money laundering policy)
Explain how you identify suspicious transactions, and what next steps you take when such transactions are identified.

Financial information
Provide a complete set of your firm’s financials, including 36-month financial forecasts. We'll also need to see historical accounts. Find out how to prepare your firm's financial information[21], which includes a financial analysis template.

We may ask for other documents that are relevant to your application, including (but not limited to):

risk management framework
outsourcing policy
wind-down plan
business continuity plan
pre-contract information
regulated credit agreements and regulated hire purchase agreements

Pre-contract information and regulated credit agreements have prescribed requirements. We advise you to seek professional guidance (eg legal advice or compliance experts) on their content. If you don't comply with the relevant regulations, your agreements may be unenforceable without a court order.

Final check and submit

Before you submit everything on Connect, give it one more check to be sure you've included everything.

If you need more help, contact us on 0300 500 0597. We're open Monday, Tuesday, Wednesday and Friday 9am to 5pm, and Thursday 9.45am to 5pm.

Application fee

You'll need to pay a fee in order to submit your application.

Make sure you're paying the correct fee:

credit unions pay £100 to apply to for consumer credit (any activity), and
£150 for any other Part 4A activity

Refer to FEES 3 Annex 1[22] in our Handbook for more details.

Other types of regulated consumer credit activity

You'll also need the relevant permission if you carry on any of the other consumer credit activities below.

Debt adjusting

This includes helping a borrower with their debt problems by taking over their obligation to discharge a debt in return for payments; or negotiating on their behalf with a creditor.

Whether an arrangement with a borrower amounts to a promise by the credit union to perform a borrower’s obligations under a loan agreement will need to be determined on a case-by-case basis.

It's unlikely that a credit union will be debt adjusting simply because it makes a loan to a member for the purpose of refinancing the member’s existing debts and pays the loan advance directly to the member’s creditors to pay off those debts.

Debt counselling

This includes giving advice to a borrower about debts due under any credit agreement or consumer hire agreement.

Note that debt adjusting and debt counselling are only regulated when the activity is carried out in respect of credit agreements or consumer hire agreements that a borrower has entered into with other lenders.

This means that if your credit union is the lender under the agreement concerned, you don't need to have permission for the activities of debt adjusting or debt counselling.

Credit information services

This includes:

obtaining information on behalf of a borrower about their financial standing – for example, by asking a credit reference agency
seeking to have this information altered or corrected
advising a borrower on how they can obtain this information themselves, or get it amended themselves

Obtaining a credit reference report as a part of your credit union’s assessment of the creditworthiness of a borrower doesn't, in itself, constitute providing credit information services.

'By way of business' test

Consumer credit activities are only regulated if they're carried on ‘by way of business’.

This is a test that depends on the facts of each case. A credit union might not be carrying on an activity ‘by way of business’ if it only carries on the activity:

on an occasional basis
without payment
not in connection with other regulated consumer credit activity

Read more about the ‘by way of business’ test in PERG 2.3[23].

03/04/2024 : Link changed Updated link for SUP15 notification form

02/11/2023 : Information added New powers for credit unions

10/02/2023 : Editorial amendment page update as part of website refresh

First published: 16/11/2015 Last updated: 03/04/2024 See all updates

Credit unions carrying out consumer credit activities

On this page

New powers for credit unions

Conditional Sale (CS)

Hire Purchase (HP)

When to notify us

When to apply to us

How to apply

What to read first

Prepare your application

Final check and submit

Application fee

Other types of regulated consumer credit activity

On this page

Credit unions[24]

More information