Retailers providing credit must register as financial service providers by 30 November 2010

Retailers providing goods on credit terms are financial service providers and therefore need to register as financial service providers under the new laws applying to the finance industry by 30 November 2010.

Generally, any person in the business of providing a financial service (including providing credit under a credit contract) is required to register as a financial services provider. In addition, if a person provides financial services to “retail clients” then that person must also be a member of a dispute resolution scheme (these schemes are established to hear complaints).

“In the business of providing a financial service” means carrying on a business of providing or offering to provide a financial service (whether or not the business is the provider’s only business or the provider’s principal business). Accordingly, if a retailer carries on a business of providing credit, or offering to provide credit, under credit contracts, then the retailer is required to be registered as a financial services provider. And, due to the nature of a retailer’s business (i.e. most likely involving “retail clients”), the retailer will most likely be required to become a member of a dispute resolution scheme as well.

I am not sure whether these obligations are an intended consequence of the new law as they could be quite onerous for certain retailers (particularly the requirement to belong to a dispute resolution scheme). I will keep an eye out for any developments on this topic.

Also, presumably, the obligations to register and belong to a dispute resolution scheme will not apply to a retailer that provides, or offers to provide, credit under credit contracts provided that the retailer is not carrying on the business of doing so. However, drawing a clear distinction between the circumstances when a retailer who provides credit will be/will not be carrying on the business of providing, or offering to provide, credit under credit contracts seems difficult.

Financial service providers should consider joining a dispute resolution provider as possible so they can apply to the Financial Service Provider Register well in advance of the due date. Unregistered financial service providers trading on 1 December 2010 will be breaking the law. The offence is a serious one and the penalties are significant.