WHO IS AFFECTED?
All persons and companies involved in the business of giving credit to consumers are caught by the Act. Significantly, "consumers" include only natural persons and not companies.
As well as credit agreements the Act also covers;
- hire-purchase agreements,
- consumer-hire agreements,
- moneylending agreements,
- housing loans.
"Credit agreement" is widely defined and means an agreement whereby a creditor grants or promises to grant to a consumer a credit in the form of a deferred payment, a cash loan or other similar financial accommodation.
Certain types of credit transactions are excluded including credit union loans, pawnbroking, certain housing loans by local authorities and credit advanced by an employer to an employee where the employee receives terms more favourable than generally offered to the public.
KEEPING THE CONSUMER INFORMED
The purpose of the Act is to ensure transparency in credit agreements, in other words, that consumers understand exactly what they are taking on when receiving a credit advance. To this end, the Act provides that credit agreements must be written and must explain clearly the credit terms including the cash and credit price, the amount and number of repayments and the APR. There is a serious downside for creditors who breach these obligations. The Act provides that a credit agreement, or any guarantee or security given in respect thereof, shall not be enforceable where these requirements have not been observed.
The Act specifies similar compliance obligations for hire-purchase agreements; consumer-hire agreements; moneylending agreements and housing loans.
Credit advertisements are also regulated so as to ensure that the consumer is not enticed by misleading "rosy" advertising of favourable credit terms.
"COOLING-OFF" PERIOD
An important change in the law is the introduction of a 10 day "cooling off" period. This allows the consumer to terminate an agreement within 10 days of receiving it by giving written notice to this effect to the creditor, or owner, as the case may be. This cooling off period does not apply to housing loans, credit card or overdraft transactions.
RESTRICTIONS ON CREDITORS
"Bullying" tactics by creditors are prohibited. Restrictions are introduced prohibiting creditors from visiting or telephoning a consumer at his place of work and from calling on the consumer between the hours of 9.00 p.m. at night and 9.00 a.m. in the morning or on Sundays or public holidays without his consent. Strict limits are also imposed on the sending of written communications to the consumer's place of work.
RIGHTS OF ENFORCEMENT
New restrictions are imposed on creditors' rights of enforcement. A creditor may not enforce an agreement by demanding early repayment or seeking repossession without first serving a notice on the consumer at least 10 days before he proposes to take any action. This notice must state the action the creditor proposes to take to enforce the term of the agreement together with details of the date of the proposed action.
In addition, where a consumer has broken his agreement, the creditor or owner cannot demand early repayment or recover possession unless he has served a notice not less than 10 days before he intends to take action specifying the action needed to remedy the breach or if it cannot be remedied, the compensation sum payable, in either event not less than 21 days after service of the notice. If the consumer remedies the breach within the 21 day period, the Act provides that no record may be kept of the fact that he broke his agreement. However, this particular provision of the Act has not yet been brought into force and is under review by the Minister.
DISCLOSURE OF FINANCIAL INFORMATION
Creditors and owners, who refuse to enter an agreement with a consumer, are required to disclose to the consumer the name and address of any person from whom the information was sought concerning the financial standing of the consumer where such information influenced the refusal. Where the consumer considers this information to be incorrect, he may give notice to the person storing the information requiring the removal or amendment of the information. The person who has the information must then inform the consumer that he has either removed the information, amended the information or taken no action.
REDUCTIONS IN COST OF CREDIT
The Act provides that a consumer is entitled to a reduction in the total cost of credit in two situations: where the amount owed in the credit agreement or any sum becomes payable before the time fixed by the agreement and where a consumer discharges its obligations before the time fixed for the termination.
MONEYLENDING
The Act repeals the Moneylenders Acts, 1990 to 1993 and substitutes for them the provisions of Part VIII. All statutory orders made under the old legislation are also repealed. The new provisions apply only to moneylending agreements with consumers, i.e. natural persons acting outside their business, trade or profession and this means that moneylending is no longer an issue for non consumer transactions. However, the definition of moneylending is so wide that the most unlikely people could be moneylenders, at least on a technical reading of the Act. For example, the washing machine repairman who accepts payment for his services by way of installments is a moneylender within the meaning of the Act. All moneylenders are required to hold a moneylender's licence and the Act outlines the procedural requirements for obtaining such a licence.
The transparency theme is reflected again in the new requirement for moneylenders to supply a repayment book to the consumer. This must contain details of the amount of credit being advanced, the amount and number of repayments and the rate of interest charged and the number of each collection charge, if any. Moneylenders are prohibited from charging a consumer in respect of expenses relating to the negotiation or granting of the loan.
MORTGAGE LENDERS
The Act introduces new provisions regulating housing loans by "mortgage lenders" and also the conduct of "mortgage agents" and "mortgage intermediaries". The following are the most important provisions.
- A borrower will be permitted to make early repayment of the whole or part of a housing loan without being liable to pay any early redemption fee. This exemption shall not apply where the loan agreement provides that the rate of interest is fixed at the time of redemption.
- A warning must appear in documents relating to a housing loan to the effect that the property is at risk in the event of default.
Mortgage lenders will have to bear the costs in respect of the legal investigation of title of the property secured.
PROVISIONS AFFECTING FINANCIAL INSTITUTIONS
The Act introduces a number of provisions into Irish law, the effect of which is to give substantial protection to the consumer during the currency of the credit agreement and these changes may affect securitisations also contemplated by financial institutions.
Where rights under an agreement are assigned by a creditor or owner to a third party, for example, in a sale or in an assignment by way of security of a lease or loan portfolio, consumers who are customers of the creditor will be able to exercise rights of set-off against the assignee. This is the position whether or not these rights arise before or after notice of the assignment has been given to them. The practical effect of this is that consumers will be able to deduct from payments due by them to the assignee of the portfolio such things as claims for faulty goods.
Also where a consumer has issued a cheque or promissory note to a creditor, and the creditor transfers it to a third party, the consumer will be able to exercise rights of set-off against the third party. This is a significant change.
DIRECTOR OF CONSUMER AFFAIRS
The Director of Consumer Affairs is given a watchdog role under the Act. He has general responsibility for overseeing its operation. He may apply to the High Court for a declaration of the total cost of creditor and any charge provided for in a credit agreement, other than one advanced by a bank or mortgage lender, is excessive. The court has power where it is decided that the total cost of credit or any charge is excessive to vary the agreement so as to do justice between the parties.
OFFENCES
A person guilty of an offence under the Act shall be liable on summary conviction to a fine not exceeding £1,500 or to imprisonment for a term not exceeding 12 months or to both, or on conviction on indictment to a fine not exceeding £15,000 or to imprisonment not exceeding 5 years or to both.
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.