Financial limits under consumer credit legislation
Introduction
Previously, under the Consumer Credit legislation, any amount borrowed on credit above £25,000 was not regulated by the Act. From 6th April 2008, this is to be removed, thus, any amount borrowed will be subject to the provisions of the 2006 Act unless specifically exempted.
Why?
So that all loans (even mortgages) are regulated. Historically, the majority of mortgages were unaffected by consumer credit legislation due to the average loan value, although it is true that many smaller second or third mortgages were caught.
The removal of the upper limit will ensure that mortgages and other high value loans will fall under the ambit of the 2006 Act.
Exemptions
A loan will be exempted from the 2006 Act where:
The debtor has a high net worth; or
It is a business loan exceeding £25,000.
Exemption due to high net worth debtors
To qualify for exemption, the debtor must be a natural person; and the agreement must include a declaration made by him to the effect that he agrees to forego the protection and remedies of a regulated agreement.
This means that while some secured lending will clearly be capable of exclusion in appropriate circumstances, the vast majority of such lending will not be capable of avoiding consumer credit regulation on the basis of the high net worth exemption.
Exemption due to the loan being for business reasons
If the agreement is for credit exceeds £25,000 and it is entered into by the debtor or hirer wholly or predominantly for business purposes it will be outside the ambit of the Act.
If the agreement includes a declaration made by the debtor or hirer to the effect that the agreement is entered into by him wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by him, the agreement shall be presumed to have been entered into by him wholly or predominantly for such purposes.
Conclusion
Changes in consumer credit legislation ensure that all loans are regulated unless the circumstances are such that the borrower will almost certainly be able to repay the loan (for example, if he has a high net worth, or if the loan is for a business).
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