Consumer Credit Act 2006: New Amendments

The Consumer Credit Act and its amendments affect all those who use credit to buy goods and or services, for example, on hire-purchase agreements or using a store credit card. The Act governs the licensing of, and other controls, on traders who supply credit, or goods and services on credit.  It is therefore a valuable tool to have knowledge of how it works at your fingertips.

This article explains a recent change to Consumer Credit law – the CCA 2006. Specifically, it explains the amendments since the 1974 Act.

The changes

The Consumer Credit Act 2006 came into force on 6 April 2007 and some new changes have been introduced in the Consumer Credit Act 1974 which will definitely expand the ambit of it.

The changes are listed below:

1.       New definition of “individual”: Furthermore, the Act does not protect new lending to partnerships of more than 3 persons. 

2.       Removal of financial limit: The Act will apply to lending (consumer credit and hire) up to any amount that was £25000 before. However, this limit will still be retained for business lending and there will be an exemption for high net worth individuals (see below). The Department of Trade and Industry (“DTI”) is currently addressing the fact that not all lending over £25,000 for the purposes of buy-to-let will fall outside the scope of the Act, which was the original intention.

3.       Fairness for the creditor: These provisions (which were originally due to come into effect in April 2008) will impose minimum standards, including:
 

-                      Periodic statements for fixed sum credit.

-                      Periodic information on statements for running account credit (e.g. health warnings).

-                      Arrears notices.

-                      Requirements relating to default notices (the period for consumers to respond to default notices has already been extended under the Act from 7 to 14 days).

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 In addition, interest on default sums will also be restricted to simple interest.

 Failure to comply with the above requirements will impact on an agreement’s enforceability.

4.       Financial Ombudsman Service (“FOS”): A new consumer credit jurisdiction is added to FOS’ existing mandate. Customers will be entitled to refer complaints (relating to an event after 6 April 2007) to FOS after they have raised the matter with the licencee. Businesses must ensure they have an complaints handling policy and that it meets the minimum standards set out by the DISP Sourcebook, part of the Financial Service Authority’s Handbook. Businesses should also ensure that relevant changes are made to agreements/other documents to include a reference to FOS.

5.       High net worth exemption: The Act will enable wealthy individuals to opt out of regulation. This will involve completion of a declaration and a statement of high net worth. There is no provision for self-certification though the DTI has stated that it is currently making the arrangements for certification to be more flexible.

6.       Unfair relationships: This test replaces the extortionate credit bargain provisions. These (significantly wider) provisions will apply to all new consumer lending (not just regulated agreements) except FSA regulated mortgage contracts. However, there will be a transitional period, until 6 April 2008, before application is extended to existing agreements.

The next key implementation date is due to be 6 April 2008, when the following provisions are likely to come into effect.

7.       The discretionary power of courts: Courts will now have discretion to enforce all invalidly executed agreements; the restrictions on this discretion, which applied in respect of certain infringements, have now been lifted.

8.       The enhanced power of OFT: OFT has been given enhanced powers as regulator under the Act, including the ability (in certain circumstances) to impose civil penalties up to £50,000.

9.       Consumer Credit Appeals Tribunal: This will allow licensees to challenge decisions taken by the OFT, and replaces the existing regime of appeals to the Secretary of State.

10.   More business activities which need license: Debt administration and credit information services will become activities requiring a consumer credit license.