What's covered by the legislation
Consumer credit in the UK is regulated by the Consumer Credit Act 1974 (amended in 2006), the Financial Services and Markets Act 2000 and various regulations implementing European Union consumer credit law.
Together, the legislation covers the following areas:
- the information consumers should be provided with before they enter into a credit agreement
- the content and form of credit agreements
- the method of calculating annual percentage rates of interest (APR)
- procedures relating to events of default, termination and early settlement
- credit Advertising
- additional protection credit card purchases costing more than £100 and up to £30,000 under Section 75 of the Consumer Credit Act
Before granting credit or significantly increasing the amount of credit available to you a creditor must assess your credit worthiness.
They must base this assessment on sufficient information obtained from you and a credit reference agency.
In addition there is certain information that must be provided to you before a regulated agreement is made. You must be informed of the following:
- 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 thereafter.
Credit agreements at a distance
The Financial Services (Distance Marketing) Regulations apply where you enter into a credit agreement at a distance - for instance, over the phone or online.
These regulations require that certain information is provided in good time before you are bound by the contract. This information must include:
- name and address of the creditor
- description of the main characteristics of the credit agreement
- total price payable for the credit
- arrangements for payment
- information regarding a right of withdrawal.
Credit agreement cooling off periods
If you sign a credit agreement off trade premises - so at a temporary marketing display stand, for instance - you have the right to cancel the agreement within the cooling off period.
In such an event a notice of your cancellation rights must be included within the copy of the credit agreement and must be sent by post or email within seven days.
You then have five clear days (not counting the date of receipt) in which to cancel.
The effect of cancelling a credit agreement within the cooling off period is that the agreement and any linked transactions are treated as if they had never been entered into.
Consequently, the loan company must repay all sums which you have paid and you must return any goods you've received.
Your right to withdraw from a credit agreement
In addition to the five-day cooling off period, you have a 14 day cooling off period in which to change your mind and cancel a credit agreement.
You have to repay the amount borrowed along with any interest that’s accrued up to the point at which you cancel.
There are some agreements that can't be cancelled, for example where the amount of credit exceeds £60,260 and for agreements secured on land.
The 14-day cooling-off period starts from the day the agreement is concluded or if later, from when you receive a copy of the agreement.
For credit card the 14-day cooling off period starts from when you receive notification of your credit limit.
While 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.
Your right to your credit files
When you apply for a loan or a credit card, the card company or credit provider may apply to a credit reference agency to check your credit history, and other details, for example, where you have lived in recent years.
It will use this information when it decides whether to give you a card or a loan.
If you believe that you have been unfairly denied credit, you can ask the credit provider which credit reference agency or agencies they used.
You can then contact the agency or agencies to get a copy of your credit file, which they must provide for £2.
There are three credit reference agencies: Equifax, Experian and CallCredit.
Inaccurate credit files
If you believe your file contains inaccurate or out-of-date information, you can ask for it to be amended, under the Consumer Credit (Credit Reference Agency) Regulations 2000.
Write to the agency giving your full name and address. It may also help to give your credit reference file number.
Clearly explain what information you think is wrong and why. Provide any proof you have to show why the information is wrong.
Keep a copy of any letters you send. By law the agency 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.
Less interest on early repayment
If you decide to pay off all or part of a loan or other credit agreement earlier than the full term, you do not have to pay the full amount of interest stipulated in the agreement.
Instead, the total amount of interest that would have been payable is reduced by a statutory 'rebate'.
If you want to pay off some or all of a loan early, you should write to your credit provider and ask how much you must pay to clear the debt, or state how much you'd like to pay off.
The creditor must then provide you with a settlement statement within seven days of receiving your request.
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.
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.
You should also inform your local Trading Standards office.
Additional protection for credit card purchases
Section 75 of the Consumer Credit Act provides additional protection for credit card purchases costing between £100 and £30,000.
If you have a claim for breach of contract or misrepresentation against the supplier of the goods or services, Section 75 gives you the same claim against the creditor.
This is useful if, for example, the trader you purchased the goods or services from has ceased to trade or if you haven't been able to locate them.
This additional protection only applies to credit card purchases, not debit card purchases.
Breach of contract over £30,000
If the item or service you are buying costs more than £30,000, the protection under Section 75 of the Consumer Credit Act won't apply.
Depending on the circumstances though, you may have protection under Section 75A. The price of the item or service must be more than £30,000 and the amount of credit the seller has arranged for you mustn't be more than £60,260.
If something goes wrong then the credit provider could be in breach of contract as long as:
• 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.
But if something goes wrong and the seller offers you a replacement or compensation which you have accepted, you can't claim under Section 75A.