UK: The Consumer Credit Directive implementation deadline: 1 February 2011

Last Updated: 11 January 2011
Article by Pinar Coktas

The 2008 Consumer Credit Directive was adopted on 23 April 2008, replacing the previous Consumer Credit Directive.

In the UK, the Directive has been implemented by the following regulations (the implementing regulations)

  • The Consumer Credit (EU Directive) Regulations 2010, SI 2010/1010
  • The Consumer Credit (Total Charge for Credit) Regulations 2010, SI 2010/1011
  • The Consumer Credit (Disclosure of Information) Regulations 2010, SI 2010/1013
  • The Consumer Credit (Agreements) Regulations 2010, SI 2010/1014
  • The Consumer Credit (Amendment) Regulations 2010, SI 2010/1969
  • The Consumer Credit (Advertisements) Regulations 2010, SI 2010/1970.

The implementing regulations apply to all consumer credit agreements regulated under the CCA (other than agreements secured on land).

Key changes

The Department for Business Innovation & Skills provide a useful summary in their leaflet titled 'Regulations Implementing the Consumer Credit Directive' and below is a summary of the key changes identified.

1. Advertising and APRs

Under the new Advertisements Regulations (The Consumer Credit (Advertisements) Regulations 2010, SI 2010/1970) if an advertisement includes an interest rate or any amount relating to the cost of credit, it must also include a representative example. This must contain certain standard information including a representative APR. The example must be clear and concise and must be more prominent than the information that triggered the inclusion of the example.

The representative APR must reflect at least 51% of business expected to result from the advertisement. The standard information must be representative of agreements to which the representative APR applies.

A non-status or comparative indication or incentive triggers a representative APR but does not in itself trigger a representative example. The APR must be more prominent than the relevant indication or incentive.

The rules for the calculation of the total charge for credit (TCC), and hence the APR, differ slightly from the previous requirements, and there are some new assumptions.

2. Creditworthiness and adequate explanations

Creditors are required to assess the borrower's creditworthiness before granting credit or significantly increasing the amount of credit. The assessment must be based on sufficient information, obtained from the borrower where appropriate, and from a credit reference agency (CRA) where necessary.

Creditors must ensure that the borrower is provided with an adequate explanation of the proposed credit agreement, for example the particular features of the agreements, the cost and the consequences of failure to make payments, to enable him to assess whether the agreement is suited to his needs and financial situation. The explanation must cover certain specified matters, and must be provided orally in certain circumstances. The borrower must be able to ask questions about the agreement, or to ask for further information or explanation.

3. Pre-contractual information and agreements

The Disclosure Regulations (The Consumer Credit (Disclosure of Information) Regulations 2010, SI 2010/1013) require pre-contractual information to be given in good time before the borrower enters into the agreement. The information must be clear and easily legible, and the borrower must be able to take it away to consider and to shop around if he wishes. In most cases the information must be provided in a standard format, the Pre-contract Credit Information form, to aid comparability and consumer understanding. In the case of overdrafts, a different standard form may be used but is not mandatory. If this form is not used, all the information must be equally prominent.

The Agreements Regulations (The Consumer Credit (Agreements) Regulations 2010, SI 2010/1014) do not prescribe the form of the credit agreement, or the ordering of information. They do prescribe the information that must be included in the document which the borrower signs. It must be clear and concise and easily legible. There are new rules regarding the provision of copies of executed agreements.

There is a new right for consumers to request a statement of account for a fixed-term loan. The statement can be requested at any time during the life of the agreement but not more frequently than once a month.

4. Right of withdrawal

The borrower can withdraw from an agreement within 14 days following conclusion of the agreement or (if later) once the borrower has received a copy of the executed agreement or notification of the credit limit on a credit card. The borrower must repay the credit and must also pay interest for each day the credit was drawn down.

5. Other key changes

  • The borrower must be notified of changes in the rate of interest payable under the agreement. This must generally be done in writing before the change takes effect.
  • The borrower is entitled to seek redress from the creditor in certain circumstances if he is unable to obtain satisfaction from the supplier of goods or services. This applies in cases where section 75 of the CCA (joint and several liability) does not apply, provided that the cash value of the goods or service is more than £30,000 and the credit does not exceed £60,260.
  • The existing right to settle a credit agreement early is extended to a right to make partial early settlements at any time. Under section 95A of the CCA the creditor may claim compensation in certain circumstances provided that this is fair and objectively justified and does not exceed 1% or 0.5% of the amount repaid early.
  • The borrower can terminate an open-end agreement at any time, subject to notice not exceeding one month. The creditor must give at least two months' notice of termination, and the notice must give objectively justified reasons for termination. The notice requirement does not apply in certain situations, for example where giving notice would prejudice the prevention of crime.
  • The borrower must be informed if the debt is sold or transferred to a third party, unless the arrangements for servicing the debt are unchanged. At Duncan Lewis, we have already been receiving letters complying with this requirement.
  • A number of changes have been made in the requirements on overdrafts. These largely relate to the information that the creditor must give to the borrower about both authorised overdrafts and overdrafts which are not pre-arranged.
  • Credit intermediaries must disclose the extent to which they are acting independently or work exclusively with one or more creditors. If a fee is payable by the borrower to the credit intermediary for his services, this must be agreed in writing with the borrower before the credit agreement is entered into. The fee must be notified to the creditor if the creditor is calculating the APR.
  • If an application for credit is declined on the basis of information from a CRA, the creditor must notify the borrower of this and provide contact details for the CRA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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