Do I need an FCA licence to lease cars to customers?

The short answer

Four questions settle it, and they have to be asked in this order. Answering the last one first is how firms end up applying for the wrong permission.

Say yes to one, two and three, and no to four, and you are entering into regulated consumer hire agreements. That needs FCA authorisation — limited permission consumer hire.

Question two, properly: the three-month test

Article 60N of the Regulated Activities Order defines a consumer hire agreement as an agreement between an owner and an individual for the bailment of goods which is not a hire-purchase agreement and is capable of subsisting for more than three months.

Read that phrase carefully, because it is not what most people assume. The test is what the agreement can do, not what it does. A twelve-month contract is caught on the day it is signed, even if the customer hands the vehicle back after eight weeks. A rolling monthly agreement with no fixed end is capable of running past three months, so it is caught too.

What is genuinely outside is short-term rental that cannot run beyond three months — the daily and weekly hire desk. If you run both a rental fleet and a contract hire book, the rental side is not the part that needs authorising.

Question three, properly: who counts as an “individual”

This is the one that catches leasing firms who believe they are entirely a business-to-business operation. The FCA Handbook defines an individual as any of:

• a natural person;
• a partnership of two or three persons, not all of which are bodies corporate; or
• an unincorporated body of persons which is not made up entirely of bodies corporate and is not a partnership.

So a limited company hirer is not an individual, and hiring to limited companies alone is not regulated consumer hire. But a sole trader is an individual. So is a two-partner plumbing firm. So is a small unincorporated club.

“We only lease to businesses” is not the same statement as “we only lease to bodies corporate”, and the difference between them is most of the UK’s small-business van market. The question is not whether the customer is trading. It is whether the customer is incorporated.

Question four, properly: the £25,000 business exemption

Article 60O exempts a hire agreement where both of these are true:

• the hirer is required by the agreement to make payments exceeding £25,000; and
• the agreement is entered into wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the hirer.

Both limbs, not either. And on ordinary vehicle contracts the first limb is the one that fails. A van on contract hire at £400 a month over three years commits the hirer to £14,400 — a long way short of £25,000, and plainly business use. That agreement is regulated.

There is a second point worth knowing about the business limb. An agreement can include a declaration by the hirer that it is for business purposes, and that declaration creates a presumption in your favour. But the presumption falls away if, when the agreement is entered into, the owner — or anyone acting on the owner’s behalf in connection with it — knows or has reasonable cause to suspect that the hire is not wholly or predominantly for business. A business-use declaration is not a form you can hand to a private customer to sign your way out of the regime.

Which permission, and is it the same application?

Consumer hire is limited permission. The FCA’s own guidance for lenders and hirers puts it plainly: firms that only ever enter into consumer hire agreements, and exercise or have the right to exercise the owner’s rights and duties under them, are Limited Permission firms.

That means the route is the one most of this site describes. Same Connect application. Same limited permission pricing category for the FCA’s application fee — £560 at the time of writing. Same regulatory business plan, same senior manager approval under SMF29, same annual return afterwards.

What differs is which activities you tick. A firm that hires out its own stock ticks consumer hire. A firm that introduces buyers to lenders ticks credit broking. A firm that does both ticks both, on one application — the same way a dealer scopes in debt adjusting and debt counselling to cover settling finance on a part-exchange. The activities are separate; the application is not.

The corollary matters more than it sounds. Holding one permission and carrying on the other is carrying on a regulated activity you are not authorised for. If you started as a dealer, took credit broking, and have since built a contract hire book on your own stock, that book is outside your permission.

One qualifier the FCA attaches to consumer hire specifically: it is limited permission unless you hold full permission for another activity. If your firm is directly authorised for insurance distribution — GAP, warranty, tyre-and-alloy under your own permission rather than as an appointed representative — that pushes the whole firm to full permission regardless. Our guide to when a dealer can’t have limited permission covers that trap and two others.

Part-exchange: owning the stock changes the answer

Worth setting out, because it is the question that most often gets answered with a flat rule when the real answer is conditional. Taking a part-exchange with outstanding finance on it means settling somebody else’s credit agreement, which is debt adjusting and debt counselling. Both are regulated activities in their own right. Whether they are limited or full turns on whether you own the vehicles you sell.

• You own the stock. You meet the FCA’s definition of a supplier, and offering part exchange on vehicles with outstanding finance needs limited permission debt adjusting and debt counselling, limited to relevant credit activities. Limited, not full. This is the ordinary dealership case.
• You do not own the stock, and you introduce only to consumer hire and hire purchase lenders. Here the part-exchange element is decisive: with it, full permission; without it, limited permission credit broking restricted to broking hire and hire purchase.
• You do not own the stock, and you introduce to lenders offering any other form of credit — unsecured personal loans, say. Full permission either way, part-exchange or not.
• You source vehicles rather than stock them, and you introduce customers to finance. Limited permission is open to you, including the debt adjusting and debt counselling for part-exchange settlements, but only if all three of the FCA’s tests hold: you would not make the introductions but for the sourcing activity, the majority of your revenue comes from sourcing rather than the credit, and — the third is simply whether part-exchange is in scope. Miss any of the first two and it is full permission.

What about going under a lender’s AR umbrella?

An appointed representative carries on regulated activities under an authorised principal, who takes regulatory responsibility for what the AR does. It is a legitimate route and for some leasing firms it is the better one. Our guide to appointed representative versus direct authorisation covers the comparison in full; two points matter specifically here.

Check the principal actually holds consumer hire. A principal can only appoint you for activities its own permission covers. Plenty of motor-sector principals are set up for credit broking, because that is what dealers need. If yours is, it cannot cover a hire book on vehicles you own, however willing it is.

Check what the agreement says, not what the conversation said. An AR appointment covers the activities written into it. Read them before you assume leasing is included.

Beyond that the usual trade-offs apply. AR is quicker to start and someone else carries the compliance burden, at the cost of a share of your income, oversight of how you sell, and a business that ends if the principal terminates the appointment or leaves the market. Direct authorisation is your own entry on the Register and your own permission, at the cost of doing the work. If AR genuinely fits your firm better, we will tell you so.

What it costs to get this wrong

Carrying on a regulated activity without authorisation contravenes section 19 of the Financial Services and Markets Act 2000, and contravention of that prohibition is a criminal offence. Agreements entered into in breach can be unenforceable against the customer without a court order — which, on a hire book, means every agreement in it. Our guide on offering finance without FCA authorisation covers the exposure.

The cheaper failure is applying for the wrong thing. The FCA’s application fee is not refundable if the application is withdrawn or refused, and a withdrawn or refused application is on your record the next time you apply. The four questions above take ten minutes. The application takes months.

If you own the vehicles you hire out, say so when we speak. It is the question that decides which activities go on your application, and a member of our team will confirm the scope with you before anything is charged.

Frequently asked questions