ARTICLE...
Resolution or revolution?
The Consumer Credit Act 1974 (CCA), the legislation that regulates most consumer credit based products in the UK, had its 34th birthday on 31 July 2008 and it sure has come a long way.
The CCA went through a major update in 2006 whereby the main purpose for the update was to ensure transparency for consumers about their accounts and tighter regulation regarding creditors' activities to ensure responsible lending.
The last implementation date to ensure compliance with the amended CCA and probably the most important date for the UK industry was on 1 October 2008.
The most important changes to the CCA are as follows:
- New Unfair Relationship Test which replaced the "Extortionate Credit Bargain" test, applicable for new agreements on 6 April 2007 and for all other agreements from 6 April 2008.
- Removal of the financial limit for regulation, previously £25,000 (approximately €31,000), and therefore brings all new consumer credit agreements from 6 April 2008, regardless of value, into regulation, save for some exceptions.
- Post-contract transparency requirements, to be implemented on 1 October 2009, which requires creditors to provide consumers with annual statements on fixed-sum credit agreements (i.e. loans, hire purchase) in addition to providing regular statements on running account credit agreements (i.e. credit cards).
Also arrears notices and default sums notices are now a requirement. A default sum would generally cover administration costs due to a breach of the agreement by the consumer and cannot be used to demand earlier repayment of a debt.
In addition to the revision of the CCA in the UK, the European Union are speeding up the process to finalise the European Directive on Consumer Credit (CCD) (2008/48/EC), which repeals the first Directive on Consumer Credit (87/102/EEC). The purpose of the CCD is to establish a Community framework for consumer credit with a view to promoting a common market for credit and the protection of consumers.
In January 2008, the European Parliament reached an agreement with the European Council following the political agreement reached in May 2007. On 22 May 2008, the final text of the CCD was published in the Official Journal in preparing for the final stages of formal implementation.
All Member States are required to adopt the CCD into national law by 2010 and the Department for Business, Enterprise and Regulatory Reform (BERR) are largely responsible for the implementation of the new CCD in the UK, leaving us all with a very short deadline to ensure maximum harmonisation and compliance.
Probably the most important changes to all Member States imposed by the CCD are:
- Regulation of consumer credit agreements between €200 and €75,000 save for some exemptions
- Exemptions on certain types of agreement, for example secured lending, including land, certain hire or leasing agreements, interest free credit, employee loans
- Common advertising provisions
- Standardised pre-contractual and contractual information requirements
- Emphasis on responsible lending through an obligation to assess a consumer's creditworthiness
- Non-discriminatory cross-border database access which may involve Data Protection related matters
- Standard amount of days right to cancel an agreement
- Early repayment / overpayment provisions
- Specific rules for Overdraft type agreements
Needless to say that the Consumer Credit market is undergoing a significant revolution and it will be interesting how this will be adopted.
However, it is clear that some Member States will find it easier than the other to adopt the CCD within its national law but is the CCD coupled with national law making it harder for the consumer to understand their obligations in an already complex market? Only time will tell.
by Willem Wellinghoff, Assistant Legal Counsel, www.cabotfinancial.com
Original article courtesy of DBSG. For further information visit www.dbsg-uk.com.
