Introduction
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 removal of the upper financial limit able to be borrowed.
Note: These amendments are intended to be brought into force on 6 April 2008.
Removal of upper limit
The £25,000 ceiling for consumer borrowing falling under the CCA is to be removed.
From 6th April 2008, there will be no financial limit for the regulation of consumer credit and consumer hire agreements under the 1974 Act. Previously, to be within the Act, the financial limit must not have exceeded £25,000.
In the future, all consumer credit and consumer hire agreements will be regulated by the 1974 Act unless specifically exempted, regardless of the amount of the credit or the amount of the hire payments. Section 2(3) extends the application of the provisions regulating credit advertisements to advertisements offering credit regardless of the sum involved, and regardless of whether the creditor requires security.
These amendments are intended to be brought into force on 6 April 2008.
Purpose of the removal
The purpose of the removal of limits is to bring any agreement for more than £25,000 credit under the ambit of the Act, in practice one of the biggest single class of loans potentially now regulated, which were omitted before, will be secured loans.
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.
However, there are still exemptions from regulated agreements where either:
- Individuals with a high net worth are the debtors; or
- the purpose is business and the lending exceeds £25,000.
So will secured lenders be able to rely on these exemptions?
To qualify under the first exemption (section 16A of the Act):
- 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.
What then of the second possible exemption, relating to businesses?
Section 16B of the Act confirms that if the agreement is for credit exceeding £25,000 and it is entered into by the debtor or hirer wholly or predominantly for the purposes of a business carried on, the Act would not regulate such an agreement.
Effects of removal
- Business secured lending, for loans above £25,000, will not be affected by the 1974 Act
- Standard mortgage lending would be regulated by the Act (and is in fact in many cases) due to the removal of financial limits.
- Loans (often secondary) taken out over domestic property by individuals to secure business borrowings – will not be regulated by the Act where they are for more than £25,000. Although these are over domestic property, these would seem to qualify under the exempt wording in Section 16B (1) as being “predominantly for the purposes of a business carried on, or intended to be carried on by [the debtor/hirer]”.
Relevant Net Lawman document templates:
Relevant Net Lawman articles on Consumer Credit:
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