REGULATED LENDING

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REGULATED LENDING

• The Consumer Credit Act 1974
• The Consumer Credit Act 1974 seeks to achieve
  three
• aims
• a) To supervise those involved in granting credit
  by
• means of a licensing system
• b) to place controls on the advertising an
  canvassing
• of credit
• c) to regulate individual credit agreements and
  to
• provide the debtor with certain rights.

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REGULATED LENDING

• 1. Definition of Consumer Credit Agreement - S.
  8.
• This section defines the consumer credit
  agreement as an agreement between an individual
  (debtor) and another person (creditor) by which
  the former provides the latter with credit not
  exceeding 25,000.

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REGULATED LENDING

• 2. Definition of Credit - S. 9.
• Cash Loan
• Hire Purchase Arrangements -
• Conditional Sale
• Credit Sale
• Consumer Hire
• Credit Token

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REGULATED LENDING

• 3. Regulated Agreements
• Creditor - a creditor may be a person, firm or
  company giving an individual credit.
• Debtor - a debtor must be
• a) an individual or
• b) a partnership in which one or more of the
  partners is an individual or
• c) two or more individuals borrowing on joint
  account e.g. husband and wife, trustees or
  personal representatives or
• d) an unincorporated body of individuals e.g. a
  club.

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REGULATED LENDING

• Credit over 25,000 is not regulated by the Act.
  The amount of credit given is not calculated as
  the total price paid by the debtor but that less
• a) any initial payment paid when the agreement is
  entered into (deposit) and
• b) any charges for credit.

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REGULATED LENDING

• For a fixed sum credit agreement the 25,000
  limit is upon the credit given.
• For a running credit account the 25,000 limit
  applies to the credit limit upon the account. If
  there is no credit limit or the credit limit
  exceeds 25,000 the agreement is still covered by
  the Consumer Credit Act if
• a) the customer may not on any one occasion draw
  more than 25,000 of credit or
• b) the agreement states that its terms will
  become more onerous if a certain figure for
  credit of 25,000 is exceeded or
• c) it is very likely that the amount of credit
  taken will be less than 25,000.

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REGULATED LENDING

• A. Running Account and Fixed Credit - S. 10
• Fixed Sum Credit - this is a one off amount e.g.
  a personal loan and also includes H.P. If a
  further amount is lent then there are simply two
  fixed sum credit agreements.
• Running Account Credit - this is where the
  customer automatically has the right to further
  amounts of credit as part of the original credit
  agreement, often subject to a credit limit. A
  bank overdraft is a form of running account
  credit as are credit cards and store cards. Note
  that there must be a 25,000 credit limit, see
  above.

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REGULATED LENDING

• B. Restricted Use and Unrestricted Use Credit -
  S. 11
• Restricted Use Credit - these are agreements
  whereby
• a) the creditor pays the funds directly to a
  supplier or
• b) the debtor receives a credit token such as a
  credit card which may only be used in
  transactions with those suppliers who agree to
  take it or
• c) the creditor also acts as supplier.
• Unrestricted Use Credit - the creditor merely
  supplies funds and the debtor can use them in any
  way he or she thinks fit.

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REGULATED LENDING

• C. Debtor -Creditor - S.12
• Debtor -Creditor -Supplier Agreements -S.13
• Debtor - Creditor Agreement - this involves
  merely the provision of finance and includes
• - a restricted use agreement where there are no
  pre-existing arrangements between lender and
  supplier,
• - a restricted use agreement to refinance an
  existing loan,
• - an unrestricted use agreement where there are
  no pre-arrangements between the creditor and the
  supplier e.g. a bank overdraft of personal loan.

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REGULATED LENDING

• Debtor - Creditor - Supplier Agreement - This is
  where the agreement relates not only to the
  provision of finance but also to the supply of
  goods and includes
• - a restricted use agreement to finance a
  transaction between the creditor and the debtor
  such as where a retailer operates its own
  instalment fiance deal, or alternatively the
  retailer provides credit via its linked finance
  house.
• - credit card transactions come within this
  agreement where although creditor and and
  supplier are different persons an arrangement
  pre-exists between them that the supplier will
  accept the creditor's card produced by the
  buyer/debtor.

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REGULATED LENDING

• It is important to distinguish between debtor -
  creditor agreements and debtor - creditor -
  supplier agreements because
• a) in a debtor - creditor - supplier agreement
  the creditor is jointly and severally liable with
  the supplier for misrepresentation made by the
  supplier or for a breach of contract by the
  supplier under S.75,
• b) in a debtor - creditor - supplier agreement
  the debtor's right to cancel a regulated
  agreement for credit also automatically cancels
  and linked transaction
• c) it is an offence to canvas most debtor -
  creditor agreements but not debtor - creditor -
  supplier agreements.
• Note Each of the above definitions is not
  mutually exclusive

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REGULATED LENDING

• 4. Linked Transactions - S.19
• A linked transaction is one that is connected
  with the main credit transaction. The following
  are examples of linked transactions
• - an agreement to buy an item which is financed
  by a debtor - creditor - supplier agreement such
  as the purchase of an item using a credit card,
  the purchase is a transaction linked with the
  credit card agreement
• - an agreement entered into in order to comply
  with a term of the main credit agreement such as
  the insuring of a vehicle on hire purchase.
• Such linked transactions are automatically
  terminated if the main transaction is cancelled.

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REGULATED LENDING

• 5. Exempt Credit - S.16
• The following agreements are exempt form the
  provisions of the Act
• - Debtor - Creditor Agreements financing land
  purchases, provision or alteration of dwellings
  or business premises made by banks, building
  societies etc.
• - Mortgages given by local authorities,

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REGULATED LENDING

• - Debtor - Creditor - Supplier Agreements for
  fixed sum credit where credit is re-paid in 4
  instalments or less,
• - Debtor - Creditor - Supplier Agreements for
  land purchase where repayments are made in 4 or
  fewer instalments,
• - Debtor - Creditor - Supplier running credit
  agreements where the full amount of each
  periodical account is repaid in full e.g. charge
  cards (American Express Diners),
• - Low Rate Debtor - Creditor - Supplier
  Agreements where the true annual rate of the
  total charge for credit does not exceed the
  higher of 13 or 1 above base rate 28 days
  before the making of the agreement, e.g. season
  ticket loan schemes

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REGULATED LENDING

• - credit used for overseas trade,
• - consumer hire agreements relating to metre
  equipment for public utilities,
• - small agreements of less than 50 except hire
  purchase and conditional sale agreements more
  than one small agreement made at the same time
  will be aggregated, S.17
• - a non-commercial agreement i.e. a loan made by
  a creditor not in the course of business, S.189
• - debit and cash card credit token agreements by
  virtue of S.89 Banking Act 1987
• - charge cards by virtue of the Consumer Credit
  (Exemptions) Order 1989.

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REGULATED LENDING

• 6. Credit Tokens - S.14
• The Consumer Credit Act 1974 defines a credit
  token as
• "(1) A credit token is a card, check, voucher,
  coupon, stamp, form, booklet other document of
  thing given to an individual by a person carrying
  on a consumer credit business who undertakes
• a) that on production of it(whether or not some
  other action is required) he or she will supply
  cash, goods and services (or any part of them) on
  credit or
• b) that where on production of it to a third
  party (whether or not any other action is
  required) the third party supplies cash, goods
  and services (or any of them) he or she will pay
  the third party (whether or not deducting any
  discount or commission) in return for payment by
  the individual."

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REGULATED LENDING

• "Tokens" include book tokens, meal vouchers, gift
  tokens, cheques, gift stamps, and cash, debit,
  charge and credit cards. However certain tokens
  such as book tokens will be exempt being below
  the 50 small agreement limit.

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REGULATED LENDING

• Cash Card
• Debit Cards
• Charge Cards
• Credit Cards
• Use of Credit Card Tokens by Third Parties

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REGULATED LENDING

• 7. Connected Lender Liability - S.75
• If a debtor under a debtor -creditor -supply
  agreement falling within s.12 has in relation to
  a transaction financed by the agreement any claim
  against the supplier in respect of a
  misrepresentation or breach of contract he or she
  shall have like claim against the creditor who
  with the supplier shall be jointly and severally
  liable to the debtor.

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REGULATED LENDING

• 8. Overdrafts
• An overdraft occurs when a customer is allowed
  to overdraw on his or her current account at the
  bank. Overdraft lending is regulated by the
  Consumer Credit Act 1974 but has become so
  widespread that certain concessions are made in
  the Act.

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REGULATED LENDING

• 9. Extortionate Credit Bargains - S.137
• Agreements that are "grossly exorbitant" or
  "contrary to ordinary principles of fair dealing"

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REGULATED LENDING

• 10. Formalities of Regulated Agreements
• The Act seeks t protect the debtor
• - Before
• - At the time
• - After
• the agreement is made.

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REGULATED LENDING

• Protection of the Debtor before the agreement is
  made
• Under S.56 of the Act arranger liable for
  misrepresentation

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REGULATED LENDING

• Protection of the Debtor at the time the
  agreement is made (1)
• The agreement must
• - be in writing,
• - be legible,
• - state what type of credit it is.

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REGULATED LENDING

• Protection of the Debtor at the time the
  agreement is made (2)
• The agreement must contain the following
  information
• - names and addresses of parties,
• - cash price of the goods concerned,(as
  appropriate)
• - amount of deposit,
• - amount of credit or credit limit,
• - APR and Total Charge for Credit,
• - amount of each payment and when it is due,
• - details of any charges in default,
• - details of any security.

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REGULATED LENDING

• Protection of the Debtor at the time the
  agreement is made (3)
• The agreement must also state the debtor's
  statutory rights
• - re. cancellation,
• - re. early termination,
• - re. loss or credit token,
• - re. early settlement.

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REGULATED LENDING

• Protection of the Debtor at the time the
  agreement is made (4)
• Copies
• When the agreement is signed by the debtor he or
  she must be provided with a copy of it.
• If following the debtor's signing the agreement
  has to be signed by the creditor then the debtor
  is entitled to a second copy within 7 days of the
  agreement becoming fully executed. If the
  agreement is cancellable the second copy must be
  sent by post.

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REGULATED LENDING

• Protection of the Debtor after the agreement is
  made (1)
• Cancellable Agreements (1)
• A cancellable agreement is where
• a) There have been oral representations made to
  the debtor e.g. about the terms of the loan or
  the quality of the goods
• and
• b) The agreement is signed elsewhere than at the
  creditor's place of business. Note if the debtor
  goes to the creditor's office to sign the
  agreement then there is no right of cancellation.

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REGULATED LENDING

• Protection of the Debtor after the agreement is
  made (2) Cancellable Agreements(2)
• The debtor must be given written notice of the
  right to cancel and has a "cooling off" period of
  5 clear days from the date of receipt of the
  notice within which to cancel. The cancellation
  must be in writing and is effective as soon as it
  is posted.
• The effect of the cancellation upon a debtor
  -creditor -supplier agreement is that no payments
  will be due and any payments made may be
  recovered. Goods in the possession of the debtor
  may be recovered within 21 days during which time
  the debtor is obliged to look after them.
• The effect of cancellation upon a debtor-creditor
  agreement is that the debtor must repay the loan.

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REGULATED LENDING

• Protection of the Debtor after the agreement is
  made (3) Failure to Observe the Formalities
• An agreement that does not conform with the
  formalities is improperly executed and can only
  be enforced by court action.S.65

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REGULATED LENDING

• Protection of the Debtor after the agreement is
  made (4) Termination of the Agreement (1)
• The debtor may pay off the debt early and will be
  entitled to a rebate or interest.
• The debtor may terminate a debtor-creditor-supplie
  r agreement by returning the goods having paid up
  to one half of the purchase price. If the debtor
  has paid more the "overpayment" is irrecoverable.
  
• If the creditor is entitled to terminate the
  agreement by reason of the debtor's default the
  creditor must serve a "default notice" specifing
  the default, requiring the remedy and giving at
  least 7 days to remedy the default. S.87.

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REGULATED LENDING

• Protection of the Debtor after the agreement is
  made (5) Termination of the Agreement (2)
• If the debtor is in breach of a hire purchase or
  conditional sale agreement and he or she has paid
  at least one third of the total price for the
  goods then the goods are "protected goods" which
  may not be repossessed by the creditor without a
  court order. S.90.
• If the creditor recovers "protected goods"
  without a court order the regulated agreement is
  terminated and the debtor is released from all
  liability under the agreement and may recover all
  sums paid. S.91.

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REGULATED LENDING

• 11. Licensing, Advertising and Canvassing
• Licensing
• Canvassing Regulated Agreements
• Canvassing Ancillary Credit Activities