Consumer Credit

The Consumer Credit Act 1974 and 2006 are UK statutes that regulate consumer credit in Northern Ireland. The legislation is broadly similar to the Consumer Credit Act 1995 in the Republic of Ireland.

The Consumer Credit Act replaced the Moneylenders Act, which regulated moneylenders, pawnbrokers, acts regulating pawnbrokers, and the Hire Purchase Act. The Hire Purchase Acts regulated hire purchase agreements below £2,000 and later £5,000.

The Moneylenders Acts did not apply to banks at all. No discrimination was made between consumers and businesspersons in the case of lending by moneylenders. The act did not contemplate new forms of credit, including credit cards.

The Consumer Credit Act 2006 followed a 2003 review of the consumer credit marketplace in the 21st century. Certain reforms were immediately put in place by means of statutory instruments. Primary legislation was required to make a number of key changes, including the financial limits and changes to the licensing, unfair credit relationships, and consumer address procedure.

The consumer is not defined by the act. However, it is broader than merely a private person acting in the course of private affairs. The 2006 act defines an individual in this context to include a partnership consisting of two or three persons, not all of whom are bodies corporate, and non-incorporated bodies or persons which do not consist entirely of bodies corporate and are not partnerships. Accordingly, small business proprietors and partners are covered.

The act may, in part, apply to certain agreements with a creditor or owner and not acting in the course of business.

The former financial limit of £25,000 was abolished [prospectively in 2008].

In broad terms, the Consumer Credit Act controls or provides licensing for particular credit activity. In addition, it replaces specific controls on individual agreements. There are civil and criminal sanctions, as well as administrative on-the-spot fine-type sanctions for breaches of the legislation.

The statutory right of the debtor, hirer, surety, or relative cannot be reduced by agreement. In certain cases, actions may not be taken to enforce unless the court or the Office of Fair Trading makes an order allowing enforcement or the relevant steps.

Hire purchase agreements for the purpose of the act, or agreements under which goods are bailed, let in return for periodical payments by the bailee, where the property and goods pass when one or more of the following conditions are complied with:

• Auction exercised doing of acts by any party to the agreement at the happening of an event.

A conditional sale agreement is an agreement for the sale of goods or land on which the price is payable by instalments, and the property is to remain in the seller until the conditions are satisfied, usually by payment of the instalment.

If there is an outright sale of goods on credit, there may be a credit sale agreement. The critical difference is the point in time at which the property and the goods pass.

The act applies largely to regulated agreements. A regulated agreement is a consumer credit agreement, consumer hire agreement which is not exempt.

Consumer credit agreements are very wide in scope and cover hire purchase agreements, credit sale agreements, conditional sale agreements, personal loans, overdrafts, loans secured by land mortgages, credit cards, pledges, and store cards.

More broadly, a consumer credit agreement is defined as any agreement by which one person provides credit to another of any amount. It includes the above-mentioned categories but does not necessarily limit to them.

Where there is an immediate agreement and the buyer then requests the time for sale, payment, there is not a credit sale agreement.

Credit is the cash or financial accommodation offered. In the context of a hire purchase agreement, credit is the total price of the goods less the deposit and the total charge for credit. The total charge for credit includes interest and other charges.

A consumer credit agreement includes fixed-sum credit or running account credit. Running account credit is a facility under a personal credit agreement whereby the debtor may receive from time to time, and the creditor or third party, cash, goods, or services to an amount or value by taking into account payments made.

The credit limit must not at any time exceed if the supplier of credit and the supplier of goods is the same person. Or if they are different persons but work together under arrangements, there is a tripartite debtor credit supplier agreement. In contrast, if a debtor-creditor agreement is simple borrowing.

The act also applies to consumer hire agreements. This is a much narrower set. A number of elements involve the payment of goods by the owner to the hirer without hire purchase and terms that are capable of lasting for more than three months and that do not require payment in excess of €25,000. This does not apply except in the case of business hirers.

Non-commercial agreements are agreements not made by the creditor or owner in the course of business carried on by him. In this context, the course of business is wider as it need not be the business of providing a loan.

A small agreement is a regulated consumer hire, consumer credit agreement for credit less than £50 other than a hire purchase or conditional sale agreement or a regulated consumer hire agreement where it does not require the hirer to make payments more than £50. The agreements must be unsecured or secured by guarantee only.

Small debtor-creditor supplier agreements for restricted use credit are exempt from most of the provisions on formalities and cancellations. Restricted use credit is credit that may be used only for a particular purpose, namely the purchase of goods. It is contrasted with unrestricted use of credit whereby money is borrowed for whatever purpose the borrower requires it for. The exempt agreements are prescribed by statutory instrument. There are a number of distinct categories of exemption. They include the following: a debtor-creditor supplier agreement if the creditor is a local authority or specified body, and the agreement finances part of the purchase of land or provision of any dwellings on any land secured by a mortgage on that land.

A debtor-creditor agreement if the lender is a local authority and the agreement is secured by a mortgage of land. A debtor-creditor agreement if the lender is a body named in regulations, it is secured by a mortgage of land, and the agreement is to finance the purchase of land, provision of dwellings on business premises or business premises on land on certain ancillary purposes.

The bodies named include insurance companies, friendly societies, and charities. They also include certain development corporations.

They originally included building societies. The building societies have been removed and will not be exempt unless they otherwise qualify for exemption.

If an agreement to finance the purchase of land does not exempt above, there is a further exemption exempting debtor-creditor supplier agreements to finance the purchaser of land if a number of payments do not exceed four. There is also an exemption for agreements to finance a premium under an insurance contract relating to the land.

There are exemptions for debtor-creditor supplier agreements if it is not a hire purchase or conditional sale. It is for a fixed sum credit; the number of payments to be made in respect of the credit does not exceed four, and they must be paid within 12 months of the date of the agreement. This is designed to exempt normal trade credit.

There is an exemption for debtor-creditor agreements if it is not a hire purchase or conditional sale. It is a running account credit, and the whole of the credit for the period is repayable by a single payment. This is intended to exempt many store cards and certain charge card agreements.

There is an exemption for debtor-creditor agreements where it is offered to a class or classes of person, not the public generally, and the only item in the total charge for credit is interest which cannot exceed 1 percent above the highest of any base rates published by England and Scottish clearing banks enforced within 28 days prior to the agreement. This low-interest exemption is not available if the credit can fluctuate. Such rates in the annual rate of charge are permissible provided that at the date of the agreement the rate did not exceed the statutory ceiling.

There is an exemption for high-networked individuals. The agreement must include a declaration of the debtor or hirer for statutory protection. The high net worth individual is a person with an individual net income of at least £150,000 per annum, net assets of £500,000 per annum during the financial year. A statement must be given by the creditor-owner on account to one of the bodies that listed in the regulations.

The total charge for credit is important for a number of reasons. The sums included in the total charge for credit do not form part of the credit. The below-mentioned statutory exemption, if the APR does not exceed a statutory maximum, applies to the rate of charge.

One of the principal purposes of legislation is to set out in a way that is common across all providers, the true cost of credit. This is to allow consumers to compare the cost of credit.

The total charge is defined in regulations which specify what items are to be included, excluded, and the manner in which the charge is to be calculated.

Included is a total interest payment and other charges payable under the transaction by or on behalf of the debtor or is relative to the creditor or another. This would include interest, but also legal fees, stamp duties, and other expenses. It also includes premiums for mandatory insurance, the object of which is to ensure payment to the credit of the credit.

Excluded items include sums payable on default, sums which will be payable in any event if it was a cash transaction, and premiums for insurance that do not qualify above.

The total charge must be calculated as the annual percentage rate reflecting the annual compounding and continuing repayment of credit.

There are manners in which the rate is to be calculated as specified. They must be calculated to the second decimal place.

Certain agreements are deemed linked transactions, and this has significance in terms of rights as set out in other chapters. Transactions entered in accordance with or compliance with a principal agreement are linked. A security agreement is not linked. A transaction to be financed debtor-creditor supplier agreement is linked. A transaction entered by a debtor or hirer or relative at the suggestion of a creditor or an associate is linked. Certain types of agreements which are linked are exempt from provisions regarding cancellation in early settlement, including certain insurance contracts, guarantees, and deposit arrangements.