Credit broker
Encyclopedia
In business and law, a credit broker is a company or individual that deals in brokerage
of consumer credit
. Essentially a credit broker links somebody looking for consumer credit, a debtor with a company or individual willing to provide it, a creditor, normally for a commission. Credit brokers include mortgage broker
s and loan brokers. The commission normally comes from the individual or institution offering credit, and the broker is therefore not entirely objective. Some credit brokers also levy a separate charge on the person looking for credit, without the knowledge of the offering institution.
In British law
, credit brokers are covered by the Consumer Credit Act 1974
and the Consumer Credit Act 2006
, which defines a credit broker not just as a mortgage or loan broker, but also as a vast range of other intermediary bodies such as car dealers, shops that introduce customers to financial houses for hire-purchase
agreements and solicitor
s who negotiate advances for non-corporate clients. Under the 1974 Act, such businesses require licenses from the Office of Fair Trading
. If the business is unlicensed, any agreements made are considered "tainted". In this situation, agreements are only enforceable with a direct order from the Director General of Fair Trading. In addition, the unlicensed trader also commits a criminal offence. This only comes into effect if enforcement is sought through the courts, however; it has been pointed out that agreements can still run their course regardless of the status of the broker. In certain situations under the 2006 Act, credit brokers become agents
of the creditor.
Broker
A broker is a party that arranges transactions between a buyer and a seller, and gets a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal...
of consumer credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
. Essentially a credit broker links somebody looking for consumer credit, a debtor with a company or individual willing to provide it, a creditor, normally for a commission. Credit brokers include mortgage broker
Mortgage broker
A mortgage broker acts as an intermediary whose brokers mortgage loans on behalf of individuals or businesses.Traditionally, banks and other lending institutions have sold their own products. However as markets for mortgages have become more competitive, the role of the mortgage broker has become...
s and loan brokers. The commission normally comes from the individual or institution offering credit, and the broker is therefore not entirely objective. Some credit brokers also levy a separate charge on the person looking for credit, without the knowledge of the offering institution.
In British law
Law of the United Kingdom
The United Kingdom has three legal systems. English law, which applies in England and Wales, and Northern Ireland law, which applies in Northern Ireland, are based on common-law principles. Scots law, which applies in Scotland, is a pluralistic system based on civil-law principles, with common law...
, credit brokers are covered by the Consumer Credit Act 1974
Consumer Credit Act 1974
The Consumer Credit Act 1974 is an Act of the Parliament of the United Kingdom that significantly reformed the law relating to consumer credit within the United Kingdom....
and the Consumer Credit Act 2006
Consumer Credit Act 2006
The Consumer Credit Act 2006 is an Act of the Parliament of the United Kingdom intended to increase consumer protection when borrowing money.-Provisions:...
, which defines a credit broker not just as a mortgage or loan broker, but also as a vast range of other intermediary bodies such as car dealers, shops that introduce customers to financial houses for hire-purchase
Hire purchase
Hire purchase is the legal term for a contract, in this persons usually agree to pay for goods in parts or a percentage at a time. It was developed in the United Kingdom and can now be found in China, Japan, Malaysia, India, South Africa, Australia, Jamaica and New Zealand. It is also called...
agreements and solicitor
Solicitor
Solicitors are lawyers who traditionally deal with any legal matter including conducting proceedings in courts. In the United Kingdom, a few Australian states and the Republic of Ireland, the legal profession is split between solicitors and barristers , and a lawyer will usually only hold one title...
s who negotiate advances for non-corporate clients. Under the 1974 Act, such businesses require licenses from the Office of Fair Trading
Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
. If the business is unlicensed, any agreements made are considered "tainted". In this situation, agreements are only enforceable with a direct order from the Director General of Fair Trading. In addition, the unlicensed trader also commits a criminal offence. This only comes into effect if enforcement is sought through the courts, however; it has been pointed out that agreements can still run their course regardless of the status of the broker. In certain situations under the 2006 Act, credit brokers become agents
Agency (law)
The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when a person, called the agent, is authorized to act on behalf of another to create a legal relationship with a third party...
of the creditor.