Date 22 September 2006
Over the past 3 years consumer credit legislation has been the subject of a major review and overhaul, the result being the Consumer Credit Act 2006 (the "Act"), which received Royal Assent on 30th March 2006. One of the major drivers for the Act was the substantial increase of consumer indebtedness in the UK. The Act reforms and amends the Consumer Credit Act 1974 (the "CCA"), its aim being the increased protection of consumers and the creation of a fairer and more competitive credit market. This is to be achieved by:-
- The enhancement of consumer rights thereby increasing customer redress through the ability to challenge unfair lending whilst providing effective options for resolving disputes;
- Improved regulation of consumer credit businesses ensuring fair practice;
- Regulation of consumer credit transactions by the extension of protection to now cover all consumer credit transactions and hire agreements. Previously under the CCA, credit agreements or hire purchase transactions under £25,000 were regulated.
The main changes under the Act
- The existing financial limit of £25,000 is to be removed. Previously under the CCA, only credit agreements or hire purchase transactions under £25,000 were regulated. Upon implementation of the relevant section under the Act, all new consumer credit and hire agreements entered into by individuals shall be regulated by the Act, irrespective of the amount of the credit or the amount of the hire payments, unless specifically exempted. However, the £25,000 limit will now apply to businesses. There are some exemptions to regulation under the Act which include transactions involving mortgage lending and high net worth consumers.
- There is a new definition of "individual" - which defines the persons to whom the protection of the Act is extended. Individuals now include natural persons, sole traders, partnerships with 3 partners or less, and unincorporated associations (in line with the exemptions set out above.
- The Office of Fair Trading shall have increased powers in respect of licensing consumer credit lenders.
- The present rules governing "extortionate credit bargains" are to be replaced by the new test of "unfair relationships", applying to all consumer lending transactions.
- Default notices sent to consumers are to be in a specified format prepared by the Office of Fair Trading.
- The introduction of an 'alternative dispute resolution' arrangement involving the Financial Services Ombudsman, providing redress for consumers dissatisfied with a lender's existing dispute resolution arrangement.
- Consumers with fixed sum credit agreements will be entitled to annual statements of account upon fixed dates in a prescribed format.
- The recovery of simple interest only on default sums of monies.
- Implementation of the Act
The Act is being introduced in parts by way of secondary legislation. The main provisions of the Act will be brought into force in two key phases:
- April 2007 - for the unfair relationships test and alternative dispute resolution arrangements.
- April 2008 - for the new licensing regime, transparency provisions and Consumer Credit Appeals Tribunal.
During the consultation period businesses have stressed the importance of being allowed ample time to put into place the necessary systems and carry out the requisite documentation changes, as required by the Act.
Conclusion
It would be prudent for individuals, partnerships and businesses to seek detailed advice as to the parts of the Act already implemented, the changes required and the steps to be taken prior to implementation of the remainder of the Act.
For queries relating to the above or any other related issue, please contact Nathanael Young on 01727 798092, or by email: nathanael.young@salaw.com
© SA Law 2006
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