What is the legislation
Consumer credit in the UK is regulated by the Consumer Credit Act (CCA) 1974 (later amended to the Consumer Credit Act 2006), the Financial Services and Markets Act 2000 and various regulations of European Union consumer credit law. It’s an important piece of legislation that protects the rights of consumers as well as setting out how most retail lending and credit is handled in the UK.
What transactions and financial products are covered under the legislation
- Credit cards
- Hire purchase agreements
- Payday loans
- Personal loans
- Store cards
- Store finance
- Secured loans (except for any secured against a person’s main residence as there are classed as FCA regulated mortgages)
What does the legislation cover
- Information that the consumers should be provided with before they enter into a credit agreement
- The procedures relation to events of default, termination and early settlement
- The content and form of agreements
- The method of calculating annual percentage rates of interest (APR)
- Rules on credit advertising
- Additional protection on credit card purchases between £100 and £30,000 under Section 75 of the CCA
Before a credit agreement is granted or extended, the lender must assess your credit worthiness. This assessment must be based on sufficient information obtained from you and a credit reference agency.
The information creditors must make available to you
When engaging with a credit agreement, the provider must supply you with certain items of information that is covered by the act:
- Length of the agreement
- How much repayments will be and when they are due
- Amount of credit or credit limit provided
- The APR, interest rate charges and anything else applicable to interest charges
- The name and address of the credit provider
- The name and address of any credit intermediary
- The nature of the agreement
- Total amount payable
- The type of credit being provided
Credit agreements at a distance
The Financial Services Regulations apply where you enter into a credit agreement at a distance. This means, if were to take place over the telephone or online.
The regulations that the following information is provided in good time prior before you are bound by the contract:
- Name and address of the creditor
- Description of the main characteristics of the credit agreement
- Total price payable for the credit
- Arrangements for repayment
- details regarding the right of withdrawal
Credit agreement cooling off period
The CCA understands that on some occasions when consumers sign to a credit agreement off premises, they might be making a decision that is hasty or poorly thought out. Therefore, the legislation provides for a cooling off period during which time the consumer has the right to cancel the credit agreement if it was signed away from the lender’s premises but in person such as a pop-up stand.
If such an event was to occur, a notice of your cancellation rights must be included within the copy of the credit agreement and must be sent by post or e-mail within seven days. You then have five days in which to cancel.
Cancelling a credit agreement within the cooling off period would be treated as if it had never happened and won’t show on your credit history. And consequently, the loan company must repay all sums which you may have paid, and you must return any goods you received.
Your right to withdraw from a credit agreement
In addition to the five-day cooling off period, you also have the right to withdraw from any credit agreement within 14 days of acceptance or when you receive a copy of the agreement if the agreement was arranged over the phone, by post or online. For credit cards, this is 14-day period starts from when you receive notification of your credit limit.
You will have to repay the amount borrowed, along with any interest that has accumulated up to the point that you cancel the agreement.
However, there are agreements where the right to withdraw does not apply such as a credit agreement that exceeds £60,260 and agreements secured against land.
Your credit files
Lenders use credit reference agencies (CRAs) to check your credit history, personal details and any other details when you apply for credit. They will use this information when they decide whether to give you credit. There are three main credit reference agencies: Equifax, Experian and TransUnion. Under the CCA, you do have the right to see this information and ensure it is correct. You can contact the credit agency to get a copy of your credit records by paying just £2.
If you find details that are incorrect or out of date, you can ask that any errors are amended. Write to the agency providing your full name, address and the credit reference number. Explain clearly what information you believe is incorrect and why with any proof as to why it is incorrect.
The CRA must advise within 28 days whether they have removed or amended the entry or taken no action. If the entry is amended, the agency will send you a copy of the amended entry.
Early repayment rules
If you decide to pay off a credit agreement early, either partially or in full, then the CCA states that you should not have to pay the full amount of interest shown in the original credit agreement. Instead, the total amount of interest that would have been payable is reduced by a statutory interest ‘rebate’.
Should decide to make an early payment, you should write to your credit provider and ask how much you need to pay to clear the debt, or state how much you would like to pay off. The creditor must then provide you with a settlement statement within seven days of receiving your request.
If the credit provider hasn’t answered your letter stating how much you will have to pay to clear some or all of the loan , or if you believe they may be trying to charge you too much, warn them that you will refer the matter to the Financial Ombudsman Service as you are being denied your right to settle the agreement early.
Additional credit card protections
Section 75 of the Consumer Credit Act provides additional protection for any credit card purchases between £100 to £30,000.
For example, if you have purchased a piece of furniture for £2,000 on credit card and then discover when it arrives it is faulty, or the goods simply haven’t turned up, but the supplier has gone out of business. Under Section 75, you can claim instead against your credit card provider to ensure you can still get your money back and not left out of pocket.
This only applies to credit cards under this legislation and does not cover debit cards, charge cards or cash cards.
