ADVICE NOTE FIRST EDITION (NOVEMBER 2013)

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1 Consumer Credit Act 1974 Implications for Golf Clubs across Scotland Disclaimer: The Scottish Golf Union (SGU) and Scottish Ladies' Golfing Association (SLGA) have sought advice from law firm DLA Piper on the implications for golf clubs across Scotland of the Consumer Credit Act This guidance note sets out a summary of that advice. Please note that the advice provided in this guidance is general in nature and Clubs may wish to take additional legal advice, tailored to their own particular circumstances. Q1. When does a golf club need a consumer credit licence? A. A consumer credit licence is required, amongst other things, to carry on a consumer credit business or an ancillary credit business. In the context of golf clubs, the most likely businesses the golf club could be engaged in is one of the following. The consumer credit business of providing credit. A consumer credit business is any business being carried on by a person so far as it comprises or relates to the provision of credit by him, or otherwise his being a creditor, under regulated consumer credit agreements. A category "A" consumer credit licence is needed for this activity. The ancillary credit business of credit brokerage. Credit brokerage is the effecting of introductions of individuals desiring to obtain credit to persons carrying on a consumer credit business. Although the law in this area is not perfectly clear it is probable that an introduction will be effected if a club undertakes some activity which is more than just giving the member the creditor's contact details and which positively facilitates the member's communication with the creditor for the purposes of obtaining credit. The passive display of an advert in a club will not constitute credit brokerage but examples of what is credit brokerage could include: o calling the creditor and passing on the member's details so that the creditor can offer credit; o presenting an application form to a member while at the club; and o including a credit application form as part of a membership renewal pack so that a member can complete this and send it on to the creditor. A category "C" consumer credit licence is needed for this activity. JV/LIVDP/UKM/

2 We understand that some golf clubs have arrangements with Fairway Credit, whereby golf clubs introduce their members so that Fairway Credit can provide credit for membership fees and this is an example of credit brokerage. There are other types of ancillary credit business for which one or more different categories of licence may be required, although these are unlikely to apply to golf clubs. This note deals only with categories "A" and "C". Q2. Is there any dispensation from the licencing provisions which could apply to golf clubs? A. The CCA does not require that credit should be provided by a person who carries on the business of money lending or of providing credit, or indeed any business at all, in order for a licence to be required. It follows that there is no dispensation for golf clubs. Q3. How do we know when we are providing credit? A. This question is important because it is only when either credit is being provided, or when introductions are made to a person that will provide credit, that a licence may be required. Credit is defined in the Consumer Credit Act 1974 ("CCA") to include a cash loan or any other form of financial accommodation. The meaning of a cash loan is clear enough, but the meaning of financial accommodation may be best understood through the use of some examples. A golf club which sells an annual membership costing, say, 1,000 repayable by 10 monthly instalments of 100 would be providing a financial accommodation and, therefore, providing credit. Had there not been an agreement to defer payment, payment for the membership would have been earned by the golf club at the point the membership was provided. As, in this example, payment is deferred credit is being provided. A golf club which sells a monthly membership on terms that the member pays a set sum per month which covers that month's membership (that is, on a pay-as-you go basis) is not providing credit. The member would be paying for the service provided to him as that service is being provided. Even if the terms of the membership agreement tie the member to a minimum membership period, that would still not affect the analysis that no credit is being provided. JV/LIVDP/UKM/

3 Such arrangements would be wholly outside the scope of the CCA because no financial accommodation would be being given and so no licence would be needed. It is also generally agreed that the time in the month when payment is made for the month's membership would not affect this analysis. If a member were to pay in full for their first year's membership and then pay in advance for the following year's membership, this would not represent the provision of credit, because there would be no financial accommodation. The member would be paying in advance for a service which would then be provided during the course of the following year. Paying on a monthly pay-as-you-go basis in the following year would also not represent the provision of credit, for the same reason as in year one. The general principle is that a debt is deferred, and credit extended, whenever the contract provides for the debtor to pay, or gives him the option to pay, later than the time at which payment would otherwise have been earned under the express or implied terms of the contract. Q4. If no interest is charged for credit provided, does that make any difference? A. Whether a creditor charged interest or not does not affect the analysis of whether credit is being provided. Q5. Does any exemption apply? A. A consumer credit licence is only required when the creditor is providing credit under agreements which are regulated by the CCA. There are a small number of exemptions which can apply to certain types of agreement, one of which in particular may apply to golf clubs. In order for the exemption to apply, certain criteria must be satisfied. In particular, the agreement must be one for the provision of fixed-sum credit (which will almost certainly be the case) under which: the total number of payments to be made by the debtor must not exceed four; those payments are required to be made within a period not exceeding 12 months beginning with the date of the agreement; and the credit must be provided without interest and without any other charges. If a club wishes to avoid the need to be licensed, it may be possible to structure the way in which they offer credit so as to fall within this exemption. JV/LIVDP/UKM/

4 Q6. Can the SGU & SLGA obtain a group licence on behalf of affiliated clubs? A. Group licences are available to bodies such as the National Association of Citizen's Advice Bureaux and the Institute of Chartered Accountants in England and Wales. We would not expect a group licence to be available to the SGU/SLGA. Q7. If we are providing credit, and should have a consumer credit licence, what else do we have to deal with? A. The CCA is a wide ranging piece of legislation which imposes a great many obligations on a creditor, beyond merely holding a licence. Examples of legislation which would apply if credit under regulated agreement is provided include the following. There are rules about the way in which credit facilities should be advertised. There are rules which must be followed prior to the entry into of an agreement such as assessing the creditworthiness of the member and that they can afford to make the repayments. There are very detailed regulations regarding the form and contents of agreements which are regulated by the CCA. There are rules which must be followed during the lifetime of the agreement, and when it is terminated due to the debtor's breach. There is no discretion within the CCA which allows a smaller lender, such as a golf club, to only comply with part of the law. If credit is being provided, then the whole of the CCA applies, as it would to any other lender, such as a bank. All of the rules are very prescriptive and even very minor deviations from them can have an adverse effect on the ability to enforce the credit agreement. By contrast, if a golf club acts as a credit broker, the duties arising under the CCA are relatively limited, reflecting the limited nature of the activity the golf club is engaged in. The key requirements will relate to the need to be licensed, and there are some rules with respect to the way in credit adverts are prepared. Q8. What are the sanctions if we get this wrong? A. Under the current law there are a number of key consequences from failing to comply with CCA legislation. Carrying on a consumer credit business while unlicensed is both a civil and a criminal offence. JV/LIVDP/UKM/

5 Failing to comply with many of the rules set out in the CCA such as with respect to the form and contents of regulated agreements can render the agreement "not properly executed". If a golf club wanted to enforce such an agreement it would be necessary to obtain a court order to do so. This could result in a member not paying his fees while continuing to use the golf club's facilities. Q9. How can a licence be obtained and what does it cost? A. Currently, licences are obtained from the Office of Fair Trading ("OFT"). Applications can be made online through the OFT's website and applying is a relatively straight forward, form-filling, exercise. The OFT website currently states that the fee for a partnership, company or other organisation is 1,466. The cost of a licence is the same whether the applicant is applying for a category "A" or "C". If a golf club is providing credit directly, and so needs a category "A" licence, then the OFT will undertake a more rigorous assessment to confirm that that golf club is fit to hold their licence. The position with respect to licensing is made a little more complex at present because of the plan for the regulation of consumer credit to be transferred to the Financial Conduct Authority ("FCA") with effect from 1 April Any golf club which currently has a licence, or a golf club which obtains one in the near future, will need to apply to the FCA for "interim permission". Obtaining interim permission will allow the licence holder to carry on engaging in the licensable activities allowed for by his licence after 1 April In due course, licence holders will be invited by the FCA to apply for full permission to carry on what will then be FCA authorised activities. It does not appear to be possible to make one application for a new consumer credit licence, and for interim permission, at the same time. The fee to apply for interim permission is 350. The fees for full authorisation to enter into consumer credit agreements will range from 1,000 for straightforward applications, to 15,000 for more complex ones. Some activities will be regarded by the FCA as being "lower risk" so firms engaged in those activities will be subject to less scrutiny and will be referred to as having "limited permission". A golf club introducing its members to a creditor as a secondary activity would probably only require limited permission. The fees to apply for limited permission are expected to be JV/LIVDP/UKM/

6 There will also be annual/periodic fees payable to the FCA based on the consumer credit income earned by the firm. The fee structure is currently subject to consultation so it is not possible to provide more certain information but further information will be made available on the FCA's website in due course. Q10. How will the changes to the law affect golf clubs? A. Golf clubs carrying on either a consumer credit business or an ancillary credit business will see considerable changes in the way they are regulated, once the FCA takes over regulation of this sector. The activities for which a consumer credit licence has historically been required will not change significantly although the new definition of credit broking will be somewhat wider than the former definition of credit brokerage so that more types of activity are likely to lead to the need to be authorised by the FCA. While being proportionate to the type of activity a firm wished to engage in, the FCA's authorisation process will be far more rigorous that the process currently in place to obtain a consumer credit licence. For example, firms seeking authorisation will have to satisfy certain "threshold conditions" which will confirm that they are adequately supervised and have the appropriate resources to be authorised. Historically the OFT has not tended to intervene in markets to a great extent. If the OFT has been aware of non-compliant activities it has only tended to intervene when there is a significant level of consumer detriment. The FCA has already indicated that it will be a more interventionist regulator, taking more action more quickly when necessary. Rather than being focussed on compliance with specific law and regulations, the FCA will work to ensure that the outcome customers experience when taking credit are good. Where the FCA finds that customers are experiencing poor outcomes it will have a wider range of powers available. The FCA's enforcement toolkit includes the ability to vary or remove a firms' permissions, sometimes with immediate effect, to impose unlimited fines and to require firms to provide customers with redress and restitution. A member of a golf club can sue his/her own golf club, and there is precedent for members taking their own golf clubs to court in Scotland. January 2014 DLA Piper UK LLP JV/LIVDP/UKM/