In the recent case of MFS Portfolio Limited v Phelan and West, District Judge Chaudhuri confirmed our debt purchaser client, MFS Portfolio Limited, could obtain a judgment even though it did not hold permission from the FCA. We successfully argued that our client was able to rely on the FCA authorisation held by its parent company - Cabot Credit Management Group Limited. Thus closing down a “loophole“ defence favoured by specialist debt challengers.
Within most debt purchaser groups it is the Special Purchase Vehicle (“SPV”) which acquires the debt whilst other companies within the group fulfil the “authorised representative” role.
An SPV, when it acquires a portfolio of debt becomes the “creditor” of any agreement which was regulated by the Consumer Credit Act. In the event court proceedings are issued for recovery of the debt it will also be the Claimant.
Under the Financial Services and Markets Act (“FSMA”) the starting point is that any firm carrying out a regulated activity (which includes debt collection) requires permission to do so from the Financial Conduct Authority (“FCA”) unless it can rely on one of the specific exemptions contained within FSMA.
Most SPVs initially did, but no longer do, hold permission from the FCA. Many court proceedings have been defended on the basis the Claimant (the SPV) is committing a criminal offence – by undertaking debt collection without permission to do so from the FCA. That argument is usually accompanied by a copy extract from the FCA website confirming the Claimant’s permission has lapsed.
However SPVs are able to rely on a provision under FSMA which exempts them from the need to be authorised by the FCA when the SPV has entered into a servicing agreement with another member of the Group. Provided that member is authorised by the FCA, the SPV does not need to be. In the recent case of MFS Portfolio Limited v Phelan and West, District Judge Chaudhuri confirmed this exemption applied so that MFS could obtain a judgment by relying on the authorisation held by Cabot Credit Management Group Limited. Whilst the Defendants have applied for permission to appeal it is to be hoped the clear reasoning of the Judge will not be overturned.