Consumer credit act (A guide)
In this brief guide, we are going to talk about the consumer credit act and how the consumer credit act secures you.
The consumer credit act 1974 (revised in 2006) isn’t the only legislation which covers consumer credit in the Uk at the moment. Consumer credit is also regulated by the Financial Services and Markets Act 2000 and various regulations implementing European Union consumer credit law.
When looking to get credit such as car finance, a personal loan etc the credit provider must take reasonable steps to ensure that you can afford to take out the credit which you are seeking. They must check your creditworthiness. This will usually involve them checking your credit file at the very least.
In addition to checking your creditworthiness, the consumer credit act also states certain information which must be provided to you before a regulated agreement is made.
The information which must be provided to you includes:
the nature of the agreement
the identity and address of the creditor
where applicable, the name and address of the credit intermediary
You must also be given key financial information including:
the type of credit
the amount of credit or the credit limit
the duration of the agreement
the rate of interest charges and the APR and any conditions applicable to the rate
the total amount payable
the amounts and timings of repayments
This information must be contained in a document headed ‘Pre-Contract Information’ which must be provided separately to the credit agreement itself.
Both parties must sign the agreement and a copy of the agreement must be given to you either at the date of signing or within seven days after you have signed the agreement.
Long-distance credit agreement
If you enter into a long-distance credit agreement: where you obtain credit over the phone or via the internet then there are certain information which must also be provided to you in good time before you enter into a regulated agreement. The interpretation “good time” is left to the credit provider.
This information must include:
name and address of the creditor
arrangements for payment
information regarding a right of withdrawal.
description of the main characteristics of the credit agreement
The total price payable for the credit
What is the Consumer Credit Act 1974?
The Consumer Credit Act 1974 (as amended by the Consumer Credit Act 2006) is a piece of government law which regulates consumer credit and consumer hire agreements. It Provides consumer protection when consumers purchase goods using credit. The consumer credit act 1974 states how consumer goods with credit can be marketed and managed. It defines how credit should be provided and redeemed by consumers.
The consumer credit act only provides protection which applies to agreements between traders and individuals, sole traders, partnerships and unincorporated associations, but not agreements made between traders and corporate bodies such as limited companies.
The consumer credit act is in-depth. It doesn’t just provide a framework but goes into details such as the form and content which should be included in a credit agreement, information consumers should be provided with before they enter into a credit agreement, additional protection for consumers who purchase goods between £100 and £30,000 and in some cases over £30,000, how advertising should happen for credit products, the methods of calculating the annual percentage rate of the total charge for credit and what steps and procedures should be in place in the case of a consumer defaulting, terminating the agreement or looking to settle the agreement early.
The act also makes it a requirement that any company or trade body which makes regulated agreements or exercises rights under a regulated agreement must obtain a credit license from the Financial conduct authority. This may also include credit brokers, credit repair businesses, debt advisors, debt management businesses and others.
If you have applied from a consumer credit license from the Financial conduct authority and have been refused a license you may be able to appeal this decision
You can find the consumer credit act here.
What is Section 75 of the Consumer Credit Act?
Section 75 of the consumer credit act is a big part of the consumer credit act which most consumers are very aware of. In summary section 75 of the consumer credit act covers you from any potential financial loss which you would have incurred if you have purchased goods between £100 and £30,000 using your credit card or other forms of credit. Section 75 of the consumer credit act essentially gives you the same rights to claim from the creditor as you would have claimed from the seller.
In some certain situations section, 75 of the consumer credit act may also apply if you have bought goods that are over £30,000 with credit. In this case, the amount of credit which has been arranged for you must not be more than £60,260.
The credit provider will be in breach of contract in this case if the below applies:
• you can’t trace the seller
• you’ve contacted the seller but they’ve failed to respond
• the seller has become insolvent
• you’ve taken reasonable steps to pursue the seller but you haven’t obtained satisfaction.
You won’t be able to claim from the credit provider if the provider has already offered you compensation or a replacement product since something has gone wrong and you have accepted this.
What type of credit products are covered by the consumer credit act?
Store finance and ‘buy now pay later’ agreements
Secured loans, although these will be unregulated if they’re with your mortgage company and taken out to make home improvements
Types of credit which isn’t covered by the consumer credit act
Debts to individuals, such as family or friends
Debts to unlicensed lenders or loan sharks
Household bills, including gas, electric and water
Debts to local or central Government, including council tax, benefit overpayments and taxes
Some credit union loans
Some types of business debt
Right to your credit files
Another important aspect of the consumer credit act is providing you with your right to your credit files. This means if you have been declined credit you can ask the provider which credit bureau they used when deciding whether to offer you credit or not and then contact that credit bureau to get a copy of your credit file. You can usually get a free copy of your credit file by requesting a statutory credit file.
The credit bureaus in the UK are Transunion, Experian, Equifax and Crediva.
You can also get your credit file through services such as clearscore and checkmyfile.
Errors on credit file
The consumer credit act also provides a framework for what to do and what should happen if there are errors in your credit file.
If you have spotted any errors on your credit file then you should first check other credit bureaus to see if they are reporting the same error by requesting your free statutory report.
You should then contact each credit report which is reporting this error and ask for them to update your credit report. You Should Provide any proof you have which disputes the data which they are currently reporting. Ensure you provide your full name, date of birth and current home address when contacting the credit bureaus.
Keep a copy of any letters you send. By law the credit reference agency or credit bureau must tell you within 28 days of your letter if it has:
removed the entry from your file
amended the entry; or
taken no action
If the entry is amended, the agency will send you a copy of the amended entry.
The credit bureaus in the UK are Transunion, Equifax, Experian and Crediva.
Cooling off period
If you sign a credit agreement off-premises, over the phone or via the internet then you will have a 14-day cooling-off period where you can terminate the credit agreement at no cost to you. This is known as the cooling-off period.
Your Cancellation rights should be included in the credit agreement you have signed and a copy of the credit agreement must be sent by post within 7 days of you signing the agreement.
You will then have five clear days (not counting the date of receipt) in which to cancel.
When you cancel a credit agreement within the cooling-off period, it is as if the credit agreement never took place. This means any money which you have paid the credit company must be returned to you and you must return any goods which you have received.
Your withdrawal rights
Aside from the cooling-off period which happens when you received your long-distance credit agreement you are also able to cancel your credit agreement have changed your mind or for any reason, you see fit within 14 days of signing the credit agreement.
You will have to repay the amount of credit you borrowed as well as any interest which you may have accrued since you borrowed the credit.
In some cases, you may not be able to cancel the credit agreement. E.g if the credit is for land or if the total amount of credit exceeds £60,260.
Your 14-day cooling-off period will kick in from the day you sign the agreement or when you receive the credit agreement, whichever is later.
For your credit card the 14-day cooling-off period starts from when you receive notification of your credit limit.
Whilst the credit agreement can be cancelled, the contract for the item or service itself won’t be affected so if you used credit to finance the purchase of a car, you would need to find some other way to pay for it unless you have some other right to cancel that contract.
Interest on early repayment
If you want to settle your credit earlier than the term you initially agreed then you can do this. If you do this you won’t have to pay the full amount of interest which is mentioned in your credit agreement. The total amount of interest that would have been payable is reduced by a statutory ‘rebate’.
If you intend to pay off your credit early then you should contact the credit provider and ask them for a settlement figure. The credit provider must then provide you with a settlement statement within seven days of you requesting one.
The relevant regulations here are the Consumer Credit (Early Settlement) Regulations 2004 and the Consumer Credit (Settlement Information) Regulations 1983.
These set out the method of calculation of the rebate and the form and content of settlement statements respectively.
In this brief guide, we discussed the consumer credit act. If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.