Emma RadmoreThe FCA has updated its guidance for consumer credit firms to reflect changes to the way firms now need to calculate their proxy measure of annual income.
When completing their reports, credit brokers need to include commission, fees and other related income relating to their regulated business. Where the broker does not receive commission income, or pays a subsidy to the credit provider, the broker should use the proxy measure of income for reporting. This is calculated at 5% of the value of the relevant credit agreement (regardless of the amount of any subsidy agreed).
Lenders must include interest, fees and other related income that relate to entering into or exercising rights under credit agreements. Where the lending is a secondary business that charges no fees or equivalent, the proxy measure to use is 5% of amounts received under agreements during the relevant period. Exempt fee-free instalment lending should not be included.
Where a firm enters into a consumer hire contract as owner, it should report any income that relates to or results from the consumer hire agreement, whether or not the charges are specified in the hire agreement.
For all other activities, the reporting measure is gross income.
The FCA warns firms not to include income from activities such as non-consumer lending, or other regulated activities. It notes it does not expect to see any nil returns where a firm has carried out credit-related regulated activities during the period. The only exception would be a credit broker which has merely displayed posters and has no way of knowing what business may have resulted. The FCA says that in theory the proxy method should apply here, but it appreciates it would not be possible to do the calculation.