Overview of Ancillary Credit Business
An ancillary credit business encompasses various services related to credit such as credit brokerage, debt adjusting, debt counselling, debt collecting, debt administration, and the operation of credit-reference agencies. These businesses are subject to regulation under the Consumer Credit Act 1974, which mandates their licensing and oversees their activities to protect consumer rights and ensure fair practices.
Breakdown of Ancillary Credit Business Activities:
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Credit Brokerage: It involves linking individuals seeking credit to those who are engaged in consumer-credit business.
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Debt Adjusting: This is where a third party negotiates the terms for discharging a debt on behalf of the debtor. This negotiation can be done under consumer-credit agreements or consumer-hire agreements.
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Debt Counselling: Providing advice to debtors or hirers on how to liquidate debts under consumer-credit or consumer-hire agreements, typically offered by parties other than the original creditor.
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Debt Collecting: Engaging a third party to take steps to procure payment of debts owed, often employed by creditors.
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Credit-Reference Agency: These agencies gather information regarding individuals’ financial status and provide it to entities seeking creditworthiness assessments.
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Debt Administration: Recognized legally as a form of ancillary credit business in 2006, this involves appointing an administrator to manage a debtor’s property, including their income, often by court order or voluntary decision.
Examples of Ancillary Credit Business Scenarios
- Credit Brokerage: A car dealership working as a credit broker to help a customer secure a loan for purchasing a vehicle.
- Debt Adjusting: A financial advisory firm negotiating with creditors on behalf of a client to settle outstanding credit card debt.
- Debt Counselling: An independent counsellor advising a client on how to manage and pay off multiple consumer loans.
- Debt Collecting: A collection agency contacting a debtor to receive past-due payments on behalf of a credit card company.
- Credit-Reference Agency: Agencies like Experian or Equifax providing credit scores and reports to a lender assessing a loan applicant’s creditworthiness.
- Debt Administration: A court-appointed debt administrator managing an individual’s finances after a legal decision to settle outstanding debts.
Frequently Asked Questions (FAQs)
1. What is an ancillary credit business?
An ancillary credit business involves various activities related to consumer credit such as credit brokerage, debt adjusting, debt counselling, debt collecting, debt administration, and operating a credit-reference agency.
2. What is the Consumer Credit Act 1974?
The Consumer Credit Act 1974 is a legal framework that regulates consumer credit businesses and ancillary services. It mandates licensing and oversees their activities to protect consumers.
3. Do all ancillary credit businesses require a license?
Yes, according to the Consumer Credit Act 1974, all ancillary credit businesses must obtain a license to operate legally.
4. What role does a credit-reference agency play in the credit industry?
Credit-reference agencies collect and provide information on individuals’ financial standing to businesses assessing creditworthiness, aiding in decision-making for loan approvals, etc.
5. Can a creditor directly provide debt counselling?
Typically no, debt counselling is usually provided by independent parties other than the original creditor to avoid conflicts of interest.
6. What is the difference between debt adjusting and debt administration?
Debt adjusting involves negotiating debt settlement, while debt administration involves managing the debtor’s overall financial affairs by an appointed administrator.
7. Is debt collecting legal?
Yes, debt collecting is legal and regulated under the Consumer Credit Act 1974. Debt collectors must adhere to fair practices and are often employed by creditors to collect payments.
8. Who regulates ancillary credit businesses?
Ancillary credit businesses are regulated by the provisions of the Consumer Credit Act 1974 to ensure fair practices and consumer protection.
9. Can an individual choose their own debt administrator?
Yes, in some cases, individuals can voluntarily select a debt administrator, although sometimes this may be done through court orders.
10. What should one look for in a credit broker?
One should ensure the credit broker is licensed under the Consumer Credit Act 1974, transparent in their services, and adheres to ethical practices.
Related Terms
- Credit Rating: A score or grade given to an individual or company that reflects their capacity to repay a loan.
- Consumer Credit: Credit extended to individuals for personal, family, or household purposes.
- Administration Order: A court order that appoints an administrator to manage an insolvent company’s affairs.
- Debtor: An individual or company that owes money.
- Creditor: An individual or institution to whom money is owed.
Online Resources
- Financial Conduct Authority - FCA
- Experian
- Equifax
- Consumer Credit Act 1974
- Debt Advice from Money Helper.
Suggested Books for Further Studies
- “Consumer Credit Law and Practice - A Guide” by Dennis Rosenthal.
- “Fair Debt Collection Practices: Federal and State Law and Regulation” by N. Clark.
- “Credit Management Handbook” by E. Keith Wall and Mick Stone.
- “Debt Recovery Handbook: A Practical Guide” by Simon Gibbs.
- “Credit Management: Principles and Practice” by Glen Bullivant.
Ancillary Credit Business Fundamentals Quiz
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