Name
Global FinTech Guide
Country _ Name
France
SectionTitle
Loan services / factoring / loan broking / finetrading
Body
FinTechs belonging to this category act as a loan creditor (even short and very short-term loans), are broking loans or receivables or conduct factoring of loans, which were given to private or business customers. In this business area you also find “peer-to-peer” (P2P) services, in which FinTechs enable a multitude of users to give loans (and brokered by the FinTech-platform) to other users or companies.

Finetrading is hereby a financial service of FinTechs, where they buy due receivables and grant the debtor an extension of payment time.

As an ancillary service some FinTechs offer alternative credit assessment services to check the solvency of a borrower.

Introduction

Attitude of the country towards loan-giving-, factoring-, brokerage-, finetrading- and ancillary services

Bank lending is at the heart of the money creation mechanism: monitoring developments in bank lending is key to the definition of the monetary policy stance and its conduct by the Bank of France.

Indeed, since the Subprimes crisis, there has been a growing trend in tightening the regulation of loan services, notably factoring and loan broking, over the years.

This tightening helped in boosting customer protection and prevention against systemic risks.

Each type of loan services are subject to specific provisions, such as:

  • Consumer loans which are subject to the Directive 2008/48/EC on consumer credit agreements. Such text aims at harmonising European Union (“EU”) rules regarding credit granted to consumers who borrow to finance purchases of goods and services (holidays, goods, new cars etc.) and opening up the EU’s consumer loan market, whilst improving the transparency of contract terms and the level of consumer protection;
  • Mortgage loans guaranteed by a mortgage and acquisition of land or property, which are regulated by Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property.

It should also be noted that any credit agreement involving a total amount of less than € 200 or more than € 75,000 is outside the scope of the consumer credit directive as well, although Member States may voluntarily extend the application of the consumer credit directive to credit agreements outside its scope. However, a proposal published by the European Commission on June 30th, 2021, to amend the consumer credit directive suggests to extend its scope to cover loans below € 200, interest free credit, all overdraft facilities and all leasing agreements, as well as credit agreements concluded through peer-to-peer lending platforms.

Lastly, please note under article L.313-1 of the CMF, credit transactions covers, among other transactions, term loans, any types of credit facilities (such as revolving or term credit facilities), issuance of guarantees, the purchase of outstanding loan receivables, and leasing transactions with purchase option. 

Legal affairs

Obligations and requirements to provide loan-giving-, factoring-, brokerage-, finetrading, and ancillary services described above

In accordance with article L.511-5 of the CMF, entities other than duly licensed credit institutions or financing companies are not authorised to conduct banking transactions on the French territory on a regular basis unless they benefit from one of the exemptions set out under articles L.511-6 and L.511-7 of the CMF.

Articles L.511-6 and L.511-7 of the CMF provide for a certain number of exemptions authorizing entities other than duly authorised credit institutions or financing companies to conduct banking transactions on a regular basis. 

The French banking regulation does not provide for generic exemptions depending on the nature of the borrowers but states some exempt
ions applicable either to categories of lenders (such as insurance companies) or to types of transactions (such as intra-group cash pooling).

Any violation of the banking monopoly is punished by three years of imprisonment and a € 375,000 fine in accordance with article L.571-3 of the CMF. It is being specified, however, that, pursuant to Article 131-38 of the French criminal code, when the offence is applied to a legal person, the latter may encounter a fine of up to five times the initial amount, i.e. € 1,875,000.

FinTechs may also provide loan brokerage services provided that they are registered at the ORIAS in accordance with article L519-3-1 of the CMF.

Additional comments regarding the legal situation for loan-giving-, factoring-, brokerage, finetrading-, and ancillary services or what FinTech’s must be aware of in this business area

It should be emphasised that FinTechs which request a financing company license will have an activity limited to credit provision only and will not benefit from the passport mechanism to offer their services in another European member state.

Economic conditions

Market size for loan-giving-, factoring-, brokerage-, finetrading- and ancillary services and biggest companies in this business area

Regarding factoring, the Association française des sociétés financières (“ASF”) decrypted a significant growth in the domestic factoring market between 2020 and 2021. The amount of operations reached € 236,388 million in 2021, a growth of 8.2%.

As for loan brokers, especially mortgage credit brokers, the ORIAS decrypted a significant growth in registrations between 2016 and 2017 where the numbers of registrations reached 22,778 in 2017 up from 22,459 in 2016.

This growth was expected. It aligns with the important share of mortgage credits given in France.
However, it is believed that only 20% of borrowers resort to a loan broker. Which is far from the 60% or so borrowers that resort to brokers in other European member states such as Spain.

Additional comments regarding the economic situation for loan-giving-, factoring-, brokerage-, finetrading- and ancillary services or what FinTech’s must be aware of in this business area

N/A.

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