Bank lending regulations

Our Ref: .ISS00993526

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Dear Mr Elder

Thank you for your email of 21 April 2009. Your email has been passed to the Customer Contact Centre (CCC) as an appropriate area to respond to your enquiry as your enquiry is not necessarily answered as a Freedom of Information Request.

Our response

You asked the Financial Services Authority (FSA) two questions that you would like answered through the Freedom of Information Act. I have listed the questions as you have asked them to make my response clearer.

Is a bank legally entitled to lend money which has been deposited with it for the purpose of saving?

A deposit is defined in article 5(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. This focuses on a sum of money paid by one person to another on terms that it will be repaid when a specified event occurs (for example, a demand is made). To this end, it is legal for a bank to lend money deposited with it.

Where, generally, does the money come from that is lent by a credit card or loan company?

This is best answered by the firm in question itself. It is worth noting that many credit card and loan providers are subsidiaries of deposit taking institutions which enables the lending of funds deposited within the group. Lending (not including regulated mortgages) and the issue of credit cards falls within the remit of the Consumer Credit Act (CCA) and is not regulated by the FSA. The CCA requires that most businesses that issue credit cards or lend money to consumers be licensed by the Office of Fair Trading (OFT). The OFT is a government body that ensures that firms are fit to hold licences. You can find more information on the OFT's role at www.oft.gov.uk.

Further information

If a UK financial services firm is unable, or likely to be unable, to pay claims against it you may be able to get compensation from the Financial Services Compensation Scheme (FSCS). The service is free to customers. I have attached a link to our website containing more information about the FSCS.

The Customer Contact Centre - how we can help

If you have any future questions on financial services and products, you may find it easier to call our Consumer Helpline on 0845 606 1234 (call rates may vary). Before doing so, you can learn about the work we carry out as the point of contact for consumers in our information sheet 'The Customer Contact Centre': http://www.moneymadeclear.fsa.gov.uk/pdf....

I hope this information is helpful to you.

Yours sincerely

P Bellars (Mr)
Customer Contact Centre
Financial Services Authority
Consumer Helpline: 0845 602 2185 (call rates may vary)
www.moneymadeclear.fsa.gov.uk
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