Changes made to the consumer credit act
In 1974, the Consumer Credit Act was brought into force. Since then various regulations have been passed making change over the years as to what is and what is not covered by the Act and what should and should not be included within a Consumer Credit Agreement in what can only be described as a piecemeal way.
Now, with the enactment of the Consumer Credit Act 2006, a complete overhaul has taken place designed to ensure that the UK consumer credit market operates in the interests of consumers and therefore in a fair, clear and competitive way.
Where once, only agreements for credit of up to £5,000.00 which was latterly increased to £25,000.00 to reflect the current credit market were caught; now credit agreements made with an individual on or after 6th April 2008 of any value are.
This means that, even the smallest loan agreements can be caught and at the other end of the scale, a second mortgage for a £1million property would also be caught. Previously this was not the case. It is said that Mortgage companies are really concerned about these changes as it will affect lenders when their borrowers make a variation to an existing mortgage arrangement so that, some unregulated loans will become the subject to dual regulation under both the Financial Services and Markets Act 2000 but also the Consumer Credit Act but also it is unclear as yet whether buy to let mortgages will be caught as well triggering further regulatory compliance.
Section 82(2) of the CCA, states that an agreement which varies or supplements an earlier agreement shall be treated as revoking the earlier agreement and effectively creates a new regulated agreement. Section 16(B) states that the Act does not regulate a consumer credit agreement by which the creditor provides the debtor with credit exceeding £25,000.00 if the agreement is entered into by the debtor wholly or predominantly for the purposes of a business carried on or intended to be carried on by him.
This is one of the exceptions that do still exist although the applicability of these is much more limited.
As part of the overhaul, the definition of “individual” has also been altered so as to encompass a partnership as long as it is no bigger than 3 partners who are not body corporate, greater transparency of statements, arrears and default notices are required. Customers must receive pre-contractual information that clearly sets out the key features for their loan in advance of the agreement and three examples of amounts a customer might receive back at certain points in the loan if they choose to settle early. Also, early settlement calculations have been created which are more advantageous to consumers that were previously contained within regulations passed in May 2005 and a new consumer credit licensing regime comes into force with enhanced sanctions for non-compliance.
The overall effect of the changes is to regulate consumer credit agreements more tightly, to ensure that the consumers are kept well advised and informed and understand the legal affects of entering into such an agreement in far more simple to understand detail. Further, it regulates the spiralling effects that can be caused by the non-payment/default on terms by limiting interest on default sums to a simple interest as opposed to a compound interest, which, as has been regularly publicised has caused on a number of occasions a small debt escalating to such an extent with the accrual of interest, that the debt claimed is the value of a four bedroom house!
There are many other new and reviewed provisions, new licensing powers, new dispute resolution provisions. We shall have to wait and see whether the underlying purpose is achieved.
June 2008
This article gives a general overview only and the legal position at the time of writing this article. It cannot be relied upon in any particular case. Specific legal advice must always be considered to include consideration as to whether the legal position contained in this article has changed since going to print. For further information and advice, please contact Nita King or Marianne Johns on 01793 527141 or alternatively by email on Nita.King@lemon-co.co.uk or Marianne.Johns@lemon-co.co.uk.
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<p><strong><a href="http://www.lemon-co.co.uk/article_changes-consumer-credit-act.php">Changes made to the consumer credit act</a></strong><br />
In 1974, the Consumer Credit Act was brought into force. Since then various regulations have been passed making change over the years as to what is and what is not covered by the Act and what should and should not be included within a Consumer Credit Agreement in what can only be described as a piecemeal way. ...</p>
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