UK: Consumer Credit Directive Update - August 2009

Last Updated: 26 August 2009
Article by Bill McCaffrey, Paula Howard and Mike Kilbee

PROGRESS TOWARDS IMPLEMENTATION

The Consumer Credit Act 1974 and regulations under it ("CCA") is already a very comprehensive piece of legislation but the Consumer Credit Directive ("CCD") will require a number of important changes to be made to it.

Draft Regulations released

BIS, the Department for Business Innovation and Skills (which replaced BERR), has released its draft proposals for the regulations implementing the CCD. These can be accessed at www.berr.gov.uk / BIS invites comments on the drafts by the end of August.

The timetable for implementation

BIS has indicated that the outline timetable now is as follows:-

  • 31 August 2009 – consultation on draft regulations closes
  • September 2009 – draft regulations go to Parliamentary Counsel for review
  • November 2009 – regulations finalised and laid before Parliament
  • June 2010 – latest time for regulations to come into force.

Scope of CCD

One area of complication arises from the mis-match between the coverage of the CCA and the more limited scope of the CCD. The CCD covers credit of between £160 and £60,260, whereas there is no upper limit for the CCA.

There are also a number of specific exclusions from the scope of the CCD, in particular, credit agreements with businesses, secured loans and hirepurchase (but conditional sale is considered to be within the scope).

Hire and leasing is also excluded from the scope of the CCD and, therefore, the draft regulations are limited to credit facilities.

Treatment of credit out of scope of the CCD

Many of the provisions of the CCA will need to be amended or disapplied in respect of credit within scope of the CCD. This then leaves the question as to what provisions should apply to other credit agreements which remain regulated by the CCA but are not within the scope of the CCD. As a general approach, the draft regulations provide that the same CCD amendments should apply to these other CCA regulated credit agreements. The objective is to achieve a consistent set of rules for the benefit of all concerned. In particular, this will result in consistency of treatment of hirepurchase, credit in excess of £60,260 and business use regulated credit. Credit secured over land, however, will continue to be regulated under the existing CCA provisions.

Advertisements

Any advertisement which includes an interest rate or any figure relating to the cost of credit will need to include "standard information" (including borrowing rate, particulars of charges, amount of credit, duration, cash price, total amount payable and instalments) by means of a "representative example " . It must also include a "representative APR" at or below which it is expected that credit would be provided under at least 51 per cent of agreements resulting from the advertisement.

The proposed regulations will replace the existing ones although some existing provisions will be retained.

Pre-contractual information

The CCD pre-contractual information requirements will replace the current CCA regulations. The information must be in the form of the Standard Europe Consumer Credit Information ("SECCI") as set out in the regulations.

The draft regulations would allow creditors to continue to provide, instead of the SECCI, the current CCA pre-contractual information in respect of business use agreements, credit exceeding £100,000 and certain agreements financing the purchase of land.

Adequate explanations to consumers

The CCD introduces a general requirement that creditors (or credit intermediaries) provide adequate explanations to the consumer in order to enable him to assess whether the proposed credit agreement is adapted to his needs and financial situation.

The draft regulations set out a list of matters on which explanations must be given and require the debtor to be given an opportunity to ask questions.

This will apply to all credit agreements, including credit secured over land, of up to £100,000.

Creditworthiness assessments

The draft regulations broadly replicate the requirement of the CCD that the creditor m u s t assess the consumer's creditworthiness based on information from the consumer, where appropriate, and on credit reference agency checks, where necessary.

This will apply to all credit agreements and creditors will need to have regard to OFT guidance which will be issued on the subject. In this regard, the consultation which the OFT issued in July 2009 on "Irresponsible lending" will also be relevant and can be accessed on the OFT website www.oft.gov.uk .

Information in the credit agreement

The proposed regulations will replace the information required by the current CCA agreements regulations except in respect of agreements secured on land, agreements for credit exceeding £100,000 and business use agreements. The intention is, however, that the creditor may, in these cases, elect to include the information specified in the new regulations instead of the information required by the current CCA regulations.

The draft regulations are less prescriptive as to layout but still include requirements as to signature and statutory statements.

Right of withdrawal

The CCD allows the consumer to withdraw from a credit agreement within 14 days of the conclusion of the agreement or, if later, of the day on which the customer receives the contractual terms and information.

The current provisions on cancellable agreements under the CCA will largely be replaced by the right of withdrawal. It is proposed, however, that the existing CCA cancellation provisions will still apply in the case of credit agreements for more than £100,000 and certain agreements financing the purchase of land.

Early repayment

The CCA gives the consumer the right to settle his credit agreement early and receive a rebate of charges.

The draft regulations provide for an approach which is similar to the existing CCA provisions but extend them to partial early repayment as well as to full settlement.

Other requirements

The draft regulations also cover the requirements of the CCD in respect of overdrafts and overrunning, credit intermediaries, database access, changes in the borrowing rate, termination of open end credit agreements, linked credit agreements, assignment of rights, calculation of the APR and sanctions for non-compliance.

Next steps

Creditors should now assess the draft regulations and how the proposals will affect them. They will need to prepare themselves for the significant changes which will have to be introduced within what will be a very limited timescale.

How Salans can help

Our specialist knowledge of the consumer credit sector means that Salans are ideally placed to assist you in understanding the requirements of the regulations implementing the CCD and assessing the changes that will need to be made to advertisements, documentation and processes.

We will be responding with our comments on the draft regulations and we can help you with advice on what the proposed changes will mean for you.

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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