Consumer Credit Act 1974
Encyclopedia
The Consumer Credit Act 1974 (c. 39) is an Act
of the Parliament of the United Kingdom
that significantly reformed the law relating to consumer credit within the United Kingdom
.
Prior to the Consumer Credit Act, legislation covering consumer credit was slapdash and focused on particular areas rather than consumer credit as a whole, such as moneylenders and hire-purchase agreements. Following the report of the Crowther Committee in 1971 it was decided that wide-ranging reform of consumer credit law was needed, and a bill to do this was introduced to Parliament. Despite its progress through Parliament being disrupted by a general election
, the bill passed quickly through the legislative process thanks to support from both the government and the opposition, coming into law on 31 July 1974.
The Act introduces new protection for consumers and new regulation for bodies trading in consumer credit and related industries. Such traders must have full licenses from the Office of Fair Trading
, which may be suspended or revoked in the event of irregularities. The Act also regulates what may be taken as security
, limits the ways in which credit organisations can advertise and gives the county court
s the ability to intercede in the case of unfair or unjust credit agreements. It also gives additional rights to the debtor, including certain limited rights to cancel concluded agreements. The Act was amended by the Consumer Credit Act 2006
.
. The first piece of legislation to deal with consumer credit was the Bills of Sale Act 1854, which required bills of sale
to be registered. This allowed the courts to intervene for the first time, since an unregistered bill of sale was void and could not be claimed by creditors. This act was followed by the Bills of Sale Act 1878 and the Bills of Sale Act (1878) Amendment Act 1882, which provided limited protection for debtors. Outside of these acts, however, little was done between 1854 and 1900, and moneylenders used this to their advantage, sometimes abusively; the report of the House of Commons Select Committee on Money-Lending in 1898 included testimony from one moneylender who admitted he charged 3,000% interest, while another had worked under 34 different aliases to avoid having notoriety associated with his name.
As a result of this report the Moneylenders Act 1900 was passed, which required registration for moneylenders and allowed the courts to dissolve "unfair" moneylending agreements. This act had two main weaknesses, however; firstly, many of the debtors who would like to sue their moneylender to have the agreement cancelled were by definition poor, and could not afford legal representation. Secondly, the Act only focused on specific types of lenders; lending by a single moneylender was covered, lending by a bank was not. In 1927 a second Moneylenders Act was passed, which required licensing as well as registration and forbade moneylenders from employing agents, canvasses or sending out unsolicited advertisements. Unfortunately the 1900 and 1927 Acts also covered commercial transactions, and since people lending money in a commercial area were not excluded as banks were, a slight infraction could make a loan completely irrecoverable. This was partially solved with the passing of the Companies Act 1967, which allowed the Board of Trade
to give individual moneylenders licenses saying that they were acting as banks, not moneylenders.
As a result of the restrictions on business caused by the Moneylenders Act 1927, the idea of hire-purchase developed. These were first regulated by the Hire-Purchase and Small Debt (Scotland) Act 1932, which only covered Scotland
; England and Wales was first covered by the Hire-Purchase Act 1938, later amended by the Hire-Purchase Act 1954 and the Hire-Purchase Act 1964. The 1965 Act applied to all hire-purchase agreements worth less than £2,000 and when the hirer and buyer was not a corporation.
, the Committee began sitting in December that year and eventually extended their review to cover consumer credit generally rather than just the bills of sale and moneylending they had initially been concerned with, and their report was finally published in March 1971. The report discussed the economical, social and legal aspects of consumer credit, and concluded that the existing law was so confused and unsatisfactory that it was not worth amending. Instead it recommended the complete repeal of all existing legislation and its replacement with two new acts: a Lending and Security Act, which would regulate legitimate business transactions, and a Consumer Sale and Loan Act which would regulate consumer credit and establish a licensed system for it use.
The reaction to the report from consumer and business organisations was overwhelmingly positive, but the government initially did nothing, since the Department of Trade and Industry wanted time to work out the particular details of any Acts. Their hand was eventually forced by Baroness Phillips
a year later, who initiated a debate in the House of Lords
on the matter. The government's official statement was that they were willing to accept almost all the recommendations made about consumer credit, they did not wish to legislate on lending and securities. In February 1973 they created a Voluntary Code which they expected those lending to observe. The Code set out guidelines for loaning money to individuals and disclosing the cost of the loan.
In September 1973 the government issued a white paper
titled Reform of the Law on Consumer Credit in which they indicated they were planning to implement almost all of the Crowther Committee's consumer credit recommendations. The only real differences were an increase in the limits for financial protection from £2,000 to £5,000 (due to the drop in value of money), and stronger protection for hirers under hire-purchase agreements.
in the same month. Thanks to the support of the opposition to the original bill this did not make a significant impact, and the new administration immediately reintroduced the bill in the House of Lords
. It was passed on 31 July 1974, and immediately received the Royal Assent
. The final version of the act contained 193 sections and 5 schedules, much larger than the original 96 pages.
general election, however, it was decided that the duties should instead be given to the Office of Fair Trading, and for this purpose a separate division (the Division of Consumer Credit) was set up within the OFT.
Section 1 of the Act gives the Director General of Fair Trading the duties of administering the licensing system set up by the Act, supervising the working and enforcement of the Act and any regulations made by it and, if appropriate, enforce the Act and regulations himself. The DGFT is also tasked with advising the government about social and commercial developments within the United Kingdom, and any actions taken to enforce the Act and its orders and regulations. Section 4 of the act requires him to disseminate any appropriate information and advice about consumer credit to the people of the United Kingdom. This allows him to educate the public about consumer credit, and was intended to be conducted through organisations such as the Citizens Advice Bureau
. The Director's duties under this Act overlap slightly with those given by the Fair Trading Act, but are still an expansion over his original role. The Director General is tasked with issuing licenses, and under Section 35 of the Act, the Director is required to maintain a register containing all appropriate information related to licenses and applications for licenses. The register was created on 2 February 1976, and is kept at Chancery House in London. The Enterprise Act 2002
formally substituted the Office of Fair Trading for the Director General of Fair Trading for the purposes of this Act.
, a trade union, an insurance company or "a body corporate named or specifically referred to in any public general Act". The definition of "agreement" is given as any discussion which produces a legal relationship; a contract
. As such the decision of courts as to whether an agreement constituted an "agreement" under the Act rests with English contract law, and is not discussed within the Act. In many cases this is largely academic, however, since unless one party tries to contest the existence of a contract any agreement can proceed regardless of its validity under contract law.
"individual" is defined as including a partnership or other unincorporated body, but not corporations registered at Companies House
or created by an Act of Parliament
or Royal Charter
, such as the BBC
. The definition also excludes "corporations sole", such as certain government ministers and bishops. Under the Industrial and Provident Societies Act 1965, industrial and provident societies
are considered corporate bodies and thus excluded from the Act, but friendly societies and trade unions are unincorporated and thus qualify. In contrast, however, the definition of "person" includes both individuals and incorporated bodies.
A regulated consumer hire agreement is defined as an agreement between two bodies, one of whom (the hirer) is an individual, and the other of whom, (the owner) is a person, by which goods are loaned to the hirer for use without an option to purchase. The agreement must be "capable of subsisting" for longer than three months, not require the hirer to make payments of more than £5,000 total and not be an "exempt agreement". "goods" are defined as chattels personal
, with "capable of subsisting" simply meaning that the agreement does not restrict the time limit of use to less than three months. The agreement does not have to exceed three months, but the option to do so must be given by one party.
Small agreements are defined in Section 17 of the act as regulated consumer credit agreements where the credit does not exceed £30 and regulated consumer hire agreements which do not require the hirer to pay more than £30 in fees. This does not include hire-purchase or conditional sale agreements, which do not qualify regardless of the size of credit, secure transactions and transactions where the parties have attempted to break up a transaction into multiple smaller ones worth under £30 to avoid regulation. Small agreements are exempt from almost all of Part V of the act, although they remain controlled by Part IV.
The Act is primarily aimed at commercial and professional traders, and as a result excludes non-commercial agreements. Non-commercial agreements are defined by the Act as agreements where neither the creditor nor debtor are providing the transaction for business purposes in any way. Non-commercial agreements are exempt from Part V of the Act.
Contracts with a foreign element would not normally be mentioned in Acts of Parliament, which are deliberately constructed to avoid giving the law extraterritorial effect. In this case, however, the Act contains provisions for contracts with a foreign element, which due to the nature of commerce are common (a credit card issued in the United Kingdom, for example, which is used on holiday in France). As a result Section 16(5) specifically excludes contracts "having a connection with a country outside the United Kingdom" from the Act.
for a license.
Group licenses are issued by the Director General of Fair Trading to cover a group of people in those activities described in the license. Group licenses can be issued following an application, or simply voluntarily by the Director. Holders of a group license do not have to apply individually and are not vetted individually, and holding a group license does not prevent members from also applying for a standard license. The group licenses are intended for cases where individual screening is not in the public interest; for example, when bodies are so large and established that their reputation is without question and individual screening would take too much time. Bodies currently holding group licenses include the Law Society of England and Wales
and the Law Society of Northern Ireland
, both professional associations of solicitors. The Director has the ability to exclude named individuals from group licenses to prevent obvious abuse.
Standard licenses are licenses issued by the Director General to an individual. It can only be provided following an application, not at the Director General's discretion like a group license, and covers certain activities in a fixed period. Initially there was no obligation to issue licenses, but an amendment to the bill in Parliament means that the Director General is required to issue a license on the application of any person, providing that person is a fit person to engage in such activities and the name he applies to be licensed under is not misleading or undesirable. The license allows an individual or a partnership to trade under those names listed on the license, and is divided into seven categories:
Holders of a license are obliged to inform the Director General when there is a change made within the office of a corporate licensee, an unincorporated body or a partnership. This must be done within 21 days of the change occurring. Details of new licenses are published in the Consumer Credit Bulletin, the weekly journal of the Office of Fair Trading
. A license lasts for 3 years beginning with the date specified on the license, not the date of its issue. A person who engages in activities that require a license when he does not have one commits a criminal offence. In addition, those agreements he makes are considered unenforceable unless the Director General directly intercedes.
A license can be terminated on the death of the licensee, the licensee becoming bankrupt, the licensee becoming a patient under the Mental Health Act 1959, a bankruptcy deal under the Bankruptcy Act 1914 in which the license is given to a trustee or a deal under the Deeds of Arrangement Act 1914 in which the licensee's license is handed to a trustee. Such provisions cover both individual, unincorporated bodies and partnerships who are license holders. These provisions do not cover corporate bodies, because following consultations the Government became aware that the liquidation and winding-up of a corporate body would pose problems with licensing, largely because the body continues to trade through a liquidator.
decided that even replying to an enquiry can amount to an advertisement if framed in such a way that it is calculated to attract business.
Part IV only applies to "public" advertising published to promote a business — as such circulars given to employees advertising such terms would not be considered "advertisements". Advertisements are not regulated by the Act if the advertiser is not involved in a consumer credit business, consumer hire business or a business in which he provides credit to individuals.
Under Part IV, the Secretary of State can make regulations limiting the form and content of advertisements covered by the Act. The regulations can also specifically include certain terms or facts, and failing to follow them constitutes an offence. The intent of these regulations is to ensure that no advertisement contains misleading information, that advertisements provide the reader with a "reasonable picture" of the terms and conditions and that the reader is aware that the availability and terms of credit may be affected by factors such as the age and employment of the applicant.
for loans should be completely prohibited. The original provisions in the bill were indeed extremely stringent, and caused potential problems for other businesses, but were significantly amended and now only affect the canvassing they were intended to prevent. Canvassing is defined as a situation in which an individual (the canvasser) solicits the entry of another individual (the consumer) into an agreement based on his oral representations during a visit by the canvasser to "any place" for the purpose of making such representations. Exceptions to "any place" are places where business is carried out, either permanently or temporarily, by the creditor, owner, supplier, canvasser, employer of the canvasser or the consumer. There is no requirement that the oral solicitations take place in person - they can come over the telephone, or be trying to induce another individual to convince the consumer into entering an agreement.
Section 61 lays out the formalities required for a regulated agreement. The terms must be found in a signed and legible document, a copy of the unsigned agreement must be supplied to the debtor or hirer, a copy of the signed document must be supplied to the debtor or hirer and a notice advising the debtor or hirer of his rights of cancellation must be included with the signed and unsigned copies. The "signed and legible document" is described in Section 61 as a document which contains all the prescribed terms, other than implied terms, and is, when presented to the debtor or hirer for signature, in such a state that all its terms are legible. Such a document must be in the form "prescribed by regulations".
; a party may withdraw from a prospective agreement at any point before it becomes a contract without obligations. He can withdraw the prospective agreement by notice to the other party, with the Act allowing the creditor to use credit brokers as agents for this purpose.
The right to cancel a confirmed agreement was introduced by the Hire-Purchase Act 1964, mainly to frustrate doorstep salesmen who would take advantage of an unsuspecting person and force them to sign up to an agreement, normally with misrepresentations. In the Consumer Credit Act, the right of cancellation is covered in Section 67, which allows the debtor or hirer the right to cancel an agreement if there were false oral representations made to the debtor by somebody acting for the creditor. The cancellation may be enacted by serving a notice of writing given to the creditor or an agent of the creditor within six days of the agreement being made.
when dealing with consumer credit. Other than the Bills of Sale Acts there had been little law on securities before this, apart from a few provisions in the Hire-Purchase Acts. The Consumer Credit Act devoted an entire part of the Act to security, mostly between debtor and creditor, with third-party rights and regulations mostly governed by common law
. The Act provides the form of securities, requires certain information and documents to be supplied, controls the enforcement of securities and provides certain circumstances in which securities can be considered void.
"Security" is defined by the Act to mean any form of mortgage, bond
, indemnity, guarantee or other right provided by the debtor as "security" to the consumer credit or hire-purchase agreement being conducted with the creditor. This covers both "real" securities such as mortgages and personal securities such as bonds. The only requirement is that the security must be given at the request of the debtor. Any security must be expressed in writing, and in some cases are part of the original hire agreement. This is distinct from previous law, which required a written note of the agreement but allowed the agreement to be conducted orally.
Certain other formalities must be observed; under Section 105, a security is not considered properly executed unless a document is signed on or on behalf of the debtor. This document must conform to certain regulations; the terms must be legible when it is presented to be signed, it must give all the terms and conditions other than implied terms, a copy must also be presented and if the security is provided before the regulated agreement is made, a copy of the security agreement must be given to the debtor within seven days of the regulated agreement being made. If the formalities are not complied with the security agreement becomes unenforceable without a court order. The Act does not provide for any civil or criminal sanctions for creditors who enforce the agreement without a court order, however, but it may lead to the revocation or suspension of the creditor's license.
s; all problems are to be brought to the County Courts, although certain situations relating to extortionate credit agreements can be sent to the High Court
.
The courts are allowed to issue enforcement orders for cases where the contract has been infringed upon, except in situations where the contract has not been signed or the terms are not set out in the contract, in which case they are permanently unenforceable. The courts are also prohibited from making enforcement orders where the owner or creditor did not give a copy of the agreement to the debtor or hirer before the contract commenced. Other than this the court is obliged to issue such orders. There are also situations in which orders can be made even when there has been no infringement. These are when the debtor or hirer has died, to recover protected goods without the consent of a debtor and to enforce a land mortgage.
The courts can also make "time orders" providing for either payment by the debtor of any sum owed to the creditor, remedying any breach of the agreement by the debtor other than non-payment of money or both. These orders are made at the discretion of the courts after an application for an enforcement order. The time orders can also cover statutory bailment
in the case of hire-order or hire-purchase agreements. If the court feels that the property in dispute or acting as security is at risk of damage or deprecation, they can give protection orders preventing the use of the property. This re-enacts Section 35 of the Hire-Purchase Act 1965, which was repealed by the Consumer Credit Act.
Other orders are "special orders", covered by Section 133 of the Act. There are two types; return orders and transfer orders. Return orders are orders from the court requiring the return of goods covered by the agreement to the creditor. These orders may be immediate or subject to a delay, and may give the debtor the option to pay the goods value to the creditor if he does not return the goods in time. Transfer orders are orders transferring the creditor's ownership of certain goods to the debtor, ordering the payment of the rest of the goods to the creditor. This can only be done if the debtor pays an amount of money equal or more than one third of the value of the returned goods.
The Consumer Credit Act provided guidelines for the court in determining whether a credit bargain is extortionate and extends the courts jurisdiction in this area to cover all credit agreements. If the court does believe the bargain was extortionate, it can re-open the agreement and examine the terms of it. If they decide it is indeed extortionate, they can set aside the remaining money owed, order the creditor to give money to the debtor, alter the terms of the agreement or order the return of any security. This only covers consumer credit agreements, not hire agreements.
age, debt adjusting, debt collecting, debt counselling or as a credit reference agency.
Credit brokers are people involved in negotiating deals between potential debtors looking for credit and creditors, normally in exchange for a commission. Under the Act, "credit broker" includes not only mortgage broker
s and loan brokers but also car dealers, shops that introduce customers to financial houses for hire-purchase agreements and solicitor
s who negotiate advances for non-corporate clients. An exception to this is if introductions and negotiations are not made in the individual's capacity as an employee of a business.
Debt adjusting is when a company or individual negotiates with the creditor or owner in an agreement on behalf of the debtor to change the terms for the discharge of the debt, takes over the debt in exchange for payment by the debtor or engages in "any similar activity concerned with the liquidation of a debt".Pieheads This is again a wide area; the base definition covers, for example, solicitors and accountants who act as negotiators for clients who owe money to a third party. There are certain exceptions; a solicitor negotiating for the settlement of his client's debts is not considered to be working as a debt adjuster thanks to Section 146 of the Act, which excludes "a solicitor engaging in contentious business" as defined in the Solicitors Act 1957.
Debt counselling is the giving of advice to debtors or hirers about the liquidation of debts under consumer credit or consumer hire agreements. This covers any debt counsellor, regardless of if it is free legal advice; as a result the Citizens Advice Bureau
, for example, is considered a debt counsellor, although its advisers are covered by a group license. Debt collectors are covered by similar provisions, and are defined as anybody who takes steps to "procure payment of debts due" under consumer credit agreements and consumer hire agreements. Those who "purchase" debts and attempt to collect on them are covered by this definition.
Exceptions for these definitions are provided under Section 146 if the credit broker, debt adjuster, debt counsellor or debt collector is the creditor or owner under the credit agreement, the supplier under the agreement, a credit broker who has acquired the business of the supplier or somebody expressly excluded from certain definitions, such as a solicitor
. The provisions for suppliers only come into effect when the credit is a loan, so that the supplier and creditor are different people. The exceptions do not include people who "buy" the roles above by purchasing the debts, such as professional debt buyers or financial houses.
Credit reference agencies are covered separately from other ancillary credit businesses, and are defined in Section 148 as individuals or companies which carry on a business "comprising the furnishing of persons with information relevant to the financial standard of individuals, being information collected by the agency for that purpose". This definition was the subject of much academic debate, because the holding of the license for a credit reference agency involves a duty to supply information on credit status which the company might prefer to keep confidential. There are exceptions; the information must be collected for the purpose of giving it to others, so the fact that a bank, for example, has that information, does not mean they need to obtain a license as a credit reference agency.
Part IV of the Act also applies to ancillary credit businesses in relation to advertising, canvassing and quotations, as well as ways in which business can be sought. The Act also limited the brokerage fees that credit brokers can charge. Under Section 155, if the brokerage work does not lead to the client entering into an agreement with a creditor within 6 months of the work, the entire fee (minus the sum of £1) is refundable to the client. The Director General at the time indicated that those businesses which flouted Section 155 would be refused a license. These provisions came into force on 1 April 1977.
s, came into force on 19 May 1985 through the Statutory Instrument "Consumer Credit Act 1974 (Commencement No. 8) Order 1983". The Act repealed the Hire-Purchase Act 1965, the Advertisements (Hire Purchase) Act 1967, the Moneylenders Act 1900, the Moneylenders Act 1927, the Pawnbrokers Act 1872 and the Pawnbrokers Act 1960. The Act was influential outside the United Kingdom, and was studied in both the United States
and the Commonwealth of Nations
. It formed the basis of a 1979 Directive on Consumer Credit of the European Union
.
The Act did not go to the full extent suggested by the Crowther Committee's report, with protection only being available for consumers, not for the credit industry.
The Act was widely supported by all sides of the political spectrum, and by academia. Arthur Rogerson compared it to the Law of Property Act 1925
in that, like the 1925 Act, it "represents fundamental rethinking of an area of great economic significance, which has resulted in the sweeping away of a chaos of obsolete rules, and the substitution for them of a simpler and better enforced body of law".
Acts of Parliament in the United Kingdom
An Act of Parliament in the United Kingdom is a type of legislation called primary legislation. These Acts are passed by the Parliament of the United Kingdom at Westminster, or by the Scottish Parliament at Edinburgh....
of the Parliament of the United Kingdom
Parliament of the United Kingdom
The Parliament of the United Kingdom of Great Britain and Northern Ireland is the supreme legislative body in the United Kingdom, British Crown dependencies and British overseas territories, located in London...
that significantly reformed the law relating to consumer credit within the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
.
Prior to the Consumer Credit Act, legislation covering consumer credit was slapdash and focused on particular areas rather than consumer credit as a whole, such as moneylenders and hire-purchase agreements. Following the report of the Crowther Committee in 1971 it was decided that wide-ranging reform of consumer credit law was needed, and a bill to do this was introduced to Parliament. Despite its progress through Parliament being disrupted by a general election
United Kingdom general election, February 1974
The United Kingdom's general election of February 1974 was held on the 28th of that month. It was the first of two United Kingdom general elections held that year, and the first election since the Second World War not to produce an overall majority in the House of Commons for the winning party,...
, the bill passed quickly through the legislative process thanks to support from both the government and the opposition, coming into law on 31 July 1974.
The Act introduces new protection for consumers and new regulation for bodies trading in consumer credit and related industries. Such traders must have full licenses from the Office of Fair Trading
Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
, which may be suspended or revoked in the event of irregularities. The Act also regulates what may be taken as security
Security (finance)
A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...
, limits the ways in which credit organisations can advertise and gives the county court
County Court
A county court is a court based in or with a jurisdiction covering one or more counties, which are administrative divisions within a country, not to be confused with the medieval system of county courts held by the High Sheriff of each county.-England and Wales:County Court matters can be lodged...
s the ability to intercede in the case of unfair or unjust credit agreements. It also gives additional rights to the debtor, including certain limited rights to cancel concluded agreements. The Act was amended by the Consumer Credit Act 2006
Consumer Credit Act 2006
The Consumer Credit Act 2006 is an Act of the Parliament of the United Kingdom intended to increase consumer protection when borrowing money.-Provisions:...
.
Early evolution of consumer protection
Consumer credit regulation was almost entirely ignored by both Parliament and the courts for over 800 years, with the judges and Members of Parliament taking the attitude that there was no reason to interfere with fairly concluded contractsEnglish contract law
English contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...
. The first piece of legislation to deal with consumer credit was the Bills of Sale Act 1854, which required bills of sale
Bill of sale
A bill of sale is a legal document made by a 'seller' to a purchaser, reporting that on a specific date, at a specific locality, and for a particular sum of money or other "value received", the seller sold to the purchaser a specific item of personal, or parcel of real, property of which he had...
to be registered. This allowed the courts to intervene for the first time, since an unregistered bill of sale was void and could not be claimed by creditors. This act was followed by the Bills of Sale Act 1878 and the Bills of Sale Act (1878) Amendment Act 1882, which provided limited protection for debtors. Outside of these acts, however, little was done between 1854 and 1900, and moneylenders used this to their advantage, sometimes abusively; the report of the House of Commons Select Committee on Money-Lending in 1898 included testimony from one moneylender who admitted he charged 3,000% interest, while another had worked under 34 different aliases to avoid having notoriety associated with his name.
As a result of this report the Moneylenders Act 1900 was passed, which required registration for moneylenders and allowed the courts to dissolve "unfair" moneylending agreements. This act had two main weaknesses, however; firstly, many of the debtors who would like to sue their moneylender to have the agreement cancelled were by definition poor, and could not afford legal representation. Secondly, the Act only focused on specific types of lenders; lending by a single moneylender was covered, lending by a bank was not. In 1927 a second Moneylenders Act was passed, which required licensing as well as registration and forbade moneylenders from employing agents, canvasses or sending out unsolicited advertisements. Unfortunately the 1900 and 1927 Acts also covered commercial transactions, and since people lending money in a commercial area were not excluded as banks were, a slight infraction could make a loan completely irrecoverable. This was partially solved with the passing of the Companies Act 1967, which allowed the Board of Trade
Board of Trade
The Board of Trade is a committee of the Privy Council of the United Kingdom, originating as a committee of inquiry in the 17th century and evolving gradually into a government department with a diverse range of functions...
to give individual moneylenders licenses saying that they were acting as banks, not moneylenders.
As a result of the restrictions on business caused by the Moneylenders Act 1927, the idea of hire-purchase developed. These were first regulated by the Hire-Purchase and Small Debt (Scotland) Act 1932, which only covered Scotland
Scotland
Scotland is a country that is part of the United Kingdom. Occupying the northern third of the island of Great Britain, it shares a border with England to the south and is bounded by the North Sea to the east, the Atlantic Ocean to the north and west, and the North Channel and Irish Sea to the...
; England and Wales was first covered by the Hire-Purchase Act 1938, later amended by the Hire-Purchase Act 1954 and the Hire-Purchase Act 1964. The 1965 Act applied to all hire-purchase agreements worth less than £2,000 and when the hirer and buyer was not a corporation.
Crowther Committee
In 1965 the Crowther Committee was established to look at the state of consumer credit law in the United Kingdom. Chaired by Lord CrowtherGeoffrey Crowther, Baron Crowther
Geoffrey Crowther, Baron Crowther was a British economist, journalist, educationalist and businessman. He was editor of The Economist from 1938 to 1956.-Early life and education:...
, the Committee began sitting in December that year and eventually extended their review to cover consumer credit generally rather than just the bills of sale and moneylending they had initially been concerned with, and their report was finally published in March 1971. The report discussed the economical, social and legal aspects of consumer credit, and concluded that the existing law was so confused and unsatisfactory that it was not worth amending. Instead it recommended the complete repeal of all existing legislation and its replacement with two new acts: a Lending and Security Act, which would regulate legitimate business transactions, and a Consumer Sale and Loan Act which would regulate consumer credit and establish a licensed system for it use.
The reaction to the report from consumer and business organisations was overwhelmingly positive, but the government initially did nothing, since the Department of Trade and Industry wanted time to work out the particular details of any Acts. Their hand was eventually forced by Baroness Phillips
Norah Phillips, Baroness Phillips
Norah Phillips, Baroness Phillips, JP was a British Labour politician.Born Norah Mary Lusher, she was educated at Hampton Training College as a teacher...
a year later, who initiated a debate in the House of Lords
House of Lords
The House of Lords is the upper house of the Parliament of the United Kingdom. Like the House of Commons, it meets in the Palace of Westminster....
on the matter. The government's official statement was that they were willing to accept almost all the recommendations made about consumer credit, they did not wish to legislate on lending and securities. In February 1973 they created a Voluntary Code which they expected those lending to observe. The Code set out guidelines for loaning money to individuals and disclosing the cost of the loan.
In September 1973 the government issued a white paper
White paper
A white paper is an authoritative report or guide that helps solve a problem. White papers are used to educate readers and help people make decisions, and are often requested and used in politics, policy, business, and technical fields. In commercial use, the term has also come to refer to...
titled Reform of the Law on Consumer Credit in which they indicated they were planning to implement almost all of the Crowther Committee's consumer credit recommendations. The only real differences were an increase in the limits for financial protection from £2,000 to £5,000 (due to the drop in value of money), and stronger protection for hirers under hire-purchase agreements.
Formation of the Act
The Act was first introduced to Parliament as the Consumer Credit Bill at the beginning of November 1973, and initially ran to 96 pages. It was given its second reading on 14 November, and was welcomed by both the government and opposition.By February 1974 it had passed through the Committee Stage, but its progress was cut short by a general electionUnited Kingdom general election, February 1974
The United Kingdom's general election of February 1974 was held on the 28th of that month. It was the first of two United Kingdom general elections held that year, and the first election since the Second World War not to produce an overall majority in the House of Commons for the winning party,...
in the same month. Thanks to the support of the opposition to the original bill this did not make a significant impact, and the new administration immediately reintroduced the bill in the House of Lords
House of Lords
The House of Lords is the upper house of the Parliament of the United Kingdom. Like the House of Commons, it meets in the Palace of Westminster....
. It was passed on 31 July 1974, and immediately received the Royal Assent
Royal Assent
The granting of royal assent refers to the method by which any constitutional monarch formally approves and promulgates an act of his or her nation's parliament, thus making it a law...
. The final version of the act contained 193 sections and 5 schedules, much larger than the original 96 pages.
Provisions of the Act
The Act is divided into 12 sections, and is "designed to provide a comprehensive code regulating the consumer credit and consumer hire fgb and almost every aspect of a credit granting operation".Part I: Director General of Fair Trading
The office of Director General of Fair Trading was created by the Fair Trading Act 1973, with the Director appointed by the government for a five-year term. Consumer credit was not originally part of his duties (although the scope of his role did contain some elements of consumer credit) and the Crowther Committee had recommended the creation of a separate Consumer Credit Commissioner, something included in the original bill. When the bill was resurrected after the February 1974United Kingdom general election, February 1974
The United Kingdom's general election of February 1974 was held on the 28th of that month. It was the first of two United Kingdom general elections held that year, and the first election since the Second World War not to produce an overall majority in the House of Commons for the winning party,...
general election, however, it was decided that the duties should instead be given to the Office of Fair Trading, and for this purpose a separate division (the Division of Consumer Credit) was set up within the OFT.
Section 1 of the Act gives the Director General of Fair Trading the duties of administering the licensing system set up by the Act, supervising the working and enforcement of the Act and any regulations made by it and, if appropriate, enforce the Act and regulations himself. The DGFT is also tasked with advising the government about social and commercial developments within the United Kingdom, and any actions taken to enforce the Act and its orders and regulations. Section 4 of the act requires him to disseminate any appropriate information and advice about consumer credit to the people of the United Kingdom. This allows him to educate the public about consumer credit, and was intended to be conducted through organisations such as the Citizens Advice Bureau
Citizens Advice Bureau
A Citizens Advice Bureau is one of a network of independent charities throughout the UK that give free, confidential information and advice to help people with their money, legal, consumer and other problems....
. The Director's duties under this Act overlap slightly with those given by the Fair Trading Act, but are still an expansion over his original role. The Director General is tasked with issuing licenses, and under Section 35 of the Act, the Director is required to maintain a register containing all appropriate information related to licenses and applications for licenses. The register was created on 2 February 1976, and is kept at Chancery House in London. The Enterprise Act 2002
Enterprise Act 2002
The Enterprise Act 2002 is an Act of the Parliament of the United Kingdom which made major changes to UK competition law with respect to mergers and also changed the law governing insolvency bankruptcy.-Structure:*Part 1 The Office of Fair Trading...
formally substituted the Office of Fair Trading for the Director General of Fair Trading for the purposes of this Act.
Part II: Credit agreements, hire agreements and linked transactions
Part II contains definitions for many types of agreements covered by the Act. There are three main types of agreement; regulated consumer credit agreements, regular consumer hire agreements and partially regulated agreements.Regulated agreements
A regulated consumer credit agreement is defined as an agreement between two parties, one of whom (the debtor) is an individual, and the other of whom (the creditor) is "any other person", in which the creditor provides the debtor with credit not exceeding £5,000. An exception to this definition is so-called "exempt agreements", which are agreements made where the creditor is a land improvement company, a charity, a friendly societyFriendly society
A friendly society is a mutual association for insurance, pensions or savings and loan-like purposes, or cooperative banking. It is a mutual organization or benefit society composed of a body of people who join together for a common financial or social purpose...
, a trade union, an insurance company or "a body corporate named or specifically referred to in any public general Act". The definition of "agreement" is given as any discussion which produces a legal relationship; a contract
English contract law
English contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...
. As such the decision of courts as to whether an agreement constituted an "agreement" under the Act rests with English contract law, and is not discussed within the Act. In many cases this is largely academic, however, since unless one party tries to contest the existence of a contract any agreement can proceed regardless of its validity under contract law.
"individual" is defined as including a partnership or other unincorporated body, but not corporations registered at Companies House
Companies House
Companies House is the United Kingdom Registrar of Companies and is an Executive Agency of the United Kingdom Government Department for Business, Innovation and Skills . All forms of companies are incorporated and registered with Companies House and file specific details as required by the...
or created by an Act of Parliament
Act of Parliament
An Act of Parliament is a statute enacted as primary legislation by a national or sub-national parliament. In the Republic of Ireland the term Act of the Oireachtas is used, and in the United States the term Act of Congress is used.In Commonwealth countries, the term is used both in a narrow...
or Royal Charter
Royal Charter
A royal charter is a formal document issued by a monarch as letters patent, granting a right or power to an individual or a body corporate. They were, and are still, used to establish significant organizations such as cities or universities. Charters should be distinguished from warrants and...
, such as the BBC
BBC
The British Broadcasting Corporation is a British public service broadcaster. Its headquarters is at Broadcasting House in the City of Westminster, London. It is the largest broadcaster in the world, with about 23,000 staff...
. The definition also excludes "corporations sole", such as certain government ministers and bishops. Under the Industrial and Provident Societies Act 1965, industrial and provident societies
Industrial and Provident Society
An industrial and provident society is a legal entity for a trading business or voluntary organisation in the United Kingdom, the Republic of Ireland, and New Zealand...
are considered corporate bodies and thus excluded from the Act, but friendly societies and trade unions are unincorporated and thus qualify. In contrast, however, the definition of "person" includes both individuals and incorporated bodies.
A regulated consumer hire agreement is defined as an agreement between two bodies, one of whom (the hirer) is an individual, and the other of whom, (the owner) is a person, by which goods are loaned to the hirer for use without an option to purchase. The agreement must be "capable of subsisting" for longer than three months, not require the hirer to make payments of more than £5,000 total and not be an "exempt agreement". "goods" are defined as chattels personal
Personal property
Personal property, roughly speaking, is private property that is moveable, as opposed to real property or real estate. In the common law systems personal property may also be called chattels or personalty. In the civil law systems personal property is often called movable property or movables - any...
, with "capable of subsisting" simply meaning that the agreement does not restrict the time limit of use to less than three months. The agreement does not have to exceed three months, but the option to do so must be given by one party.
Partially regulated agreements
Partially regulated agreements are those consumer hire or consumer credit agreements which are not an exempt agreement but are exempt from certain provisions of the Act. What these provisions are depends on the type of agreement; small agreements, non-commercial agreements and contracts with a foreign element.Small agreements are defined in Section 17 of the act as regulated consumer credit agreements where the credit does not exceed £30 and regulated consumer hire agreements which do not require the hirer to pay more than £30 in fees. This does not include hire-purchase or conditional sale agreements, which do not qualify regardless of the size of credit, secure transactions and transactions where the parties have attempted to break up a transaction into multiple smaller ones worth under £30 to avoid regulation. Small agreements are exempt from almost all of Part V of the act, although they remain controlled by Part IV.
The Act is primarily aimed at commercial and professional traders, and as a result excludes non-commercial agreements. Non-commercial agreements are defined by the Act as agreements where neither the creditor nor debtor are providing the transaction for business purposes in any way. Non-commercial agreements are exempt from Part V of the Act.
Contracts with a foreign element would not normally be mentioned in Acts of Parliament, which are deliberately constructed to avoid giving the law extraterritorial effect. In this case, however, the Act contains provisions for contracts with a foreign element, which due to the nature of commerce are common (a credit card issued in the United Kingdom, for example, which is used on holiday in France). As a result Section 16(5) specifically excludes contracts "having a connection with a country outside the United Kingdom" from the Act.
Part III: Licensing of credit and hire businesses
The previous Acts on commercial credit provided no mechanism to regulate and enforce the rules, and the Consumer Credit Act's licensing system was the first major regulatory process within British consumer credit law. Licenses are required to carry out a consumer credit or consumer hire business, with exceptions for local authorities and corporate bodies allowed by an Act of Parliament to carry out consumer credit business. All other bodies must apply to the Consumer Credit Licensing Branch of the Office of Fair TradingOffice of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
for a license.
Types of license
There are two types of license given - group licenses and standard licenses.Group licenses are issued by the Director General of Fair Trading to cover a group of people in those activities described in the license. Group licenses can be issued following an application, or simply voluntarily by the Director. Holders of a group license do not have to apply individually and are not vetted individually, and holding a group license does not prevent members from also applying for a standard license. The group licenses are intended for cases where individual screening is not in the public interest; for example, when bodies are so large and established that their reputation is without question and individual screening would take too much time. Bodies currently holding group licenses include the Law Society of England and Wales
Law Society of England and Wales
The Law Society is the professional association that represents the solicitors' profession in England and Wales. It provides services and support to practising and training solicitors as well as serving as a sounding board for law reform. Members of the Society are often consulted when important...
and the Law Society of Northern Ireland
Law Society of Northern Ireland
'The is a professional body established by Royal Charter granted on 10 July 1922 and whose powers and duties are to regulate the solicitors' profession in Northern Ireland with the aim of protecting the public....
, both professional associations of solicitors. The Director has the ability to exclude named individuals from group licenses to prevent obvious abuse.
Standard licenses are licenses issued by the Director General to an individual. It can only be provided following an application, not at the Director General's discretion like a group license, and covers certain activities in a fixed period. Initially there was no obligation to issue licenses, but an amendment to the bill in Parliament means that the Director General is required to issue a license on the application of any person, providing that person is a fit person to engage in such activities and the name he applies to be licensed under is not misleading or undesirable. The license allows an individual or a partnership to trade under those names listed on the license, and is divided into seven categories:
- Category A: Consumer credit business
- Category B: Consumer hire business
- Category C: Credit brokerage
- Category D: Debt-adjusting and counselling
- Category E: Debt-collecting
- Category F: Credit reference agencies
Holders of a license are obliged to inform the Director General when there is a change made within the office of a corporate licensee, an unincorporated body or a partnership. This must be done within 21 days of the change occurring. Details of new licenses are published in the Consumer Credit Bulletin, the weekly journal of the Office of Fair Trading
Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
. A license lasts for 3 years beginning with the date specified on the license, not the date of its issue. A person who engages in activities that require a license when he does not have one commits a criminal offence. In addition, those agreements he makes are considered unenforceable unless the Director General directly intercedes.
A license can be terminated on the death of the licensee, the licensee becoming bankrupt, the licensee becoming a patient under the Mental Health Act 1959, a bankruptcy deal under the Bankruptcy Act 1914 in which the license is given to a trustee or a deal under the Deeds of Arrangement Act 1914 in which the licensee's license is handed to a trustee. Such provisions cover both individual, unincorporated bodies and partnerships who are license holders. These provisions do not cover corporate bodies, because following consultations the Government became aware that the liquidation and winding-up of a corporate body would pose problems with licensing, largely because the body continues to trade through a liquidator.
Part IV: Seeking business
The Act specifically controls the way in which traders and companies seek business. Prior to this individual aspects had been controlled — advertisement by moneylenders had been strictly regulated since the Moneylenders Act 1927 — but no other aspects of consumer credit were regulated at all. While this was acceptable for large and respectable institutions, the evolution of less reputable trading organisations necessitated some kind of regulation, and the Consumer Credit Act was the first statute to provide such controls for consumer credit organisations. It covers three main areas: advertising, canvassing and quotations and the display of information. No regulations have yet been made on quotations or the display of information.Advertising
The advertising provisions apply to any advertisement published for the business carried out by the advertiser which indicates he is willing to provide credit or provide goods to be hired. "advertisement" is taken to mean any form of advertisement, including a publication, television or radio broadcast, the display of signs, labels or goods, the distribution of samples, circulars, catalogues or price lists or the exhibition of picture, models or films, or in "any other way". Previous legislation such as the Advertisements (Hire-Purchase) Act 1967 limited the definition of advertisement to visual advertisements and excluded oral communications and radio broadcasts, which are included by the Act. The test of whether an oral communication counts as an "advertisement" is whether or not the communication is made for drawing attention to the advertiser's business or for answering a specific enquiry without promoting the business. In R. v Delmayne [1970] 2 QB 170 the High Court of JusticeHigh Court of Justice
The High Court of Justice is, together with the Court of Appeal and the Crown Court, one of the Senior Courts of England and Wales...
decided that even replying to an enquiry can amount to an advertisement if framed in such a way that it is calculated to attract business.
Part IV only applies to "public" advertising published to promote a business — as such circulars given to employees advertising such terms would not be considered "advertisements". Advertisements are not regulated by the Act if the advertiser is not involved in a consumer credit business, consumer hire business or a business in which he provides credit to individuals.
Under Part IV, the Secretary of State can make regulations limiting the form and content of advertisements covered by the Act. The regulations can also specifically include certain terms or facts, and failing to follow them constitutes an offence. The intent of these regulations is to ensure that no advertisement contains misleading information, that advertisements provide the reader with a "reasonable picture" of the terms and conditions and that the reader is aware that the availability and terms of credit may be affected by factors such as the age and employment of the applicant.
Canvassing
The Crowther Committee recommended that doorstep canvassingPeddler
A peddler, in British English pedlar, also known as a canvasser, cheapjack, monger, or solicitor , is a travelling vendor of goods. In England, the term was mostly used for travellers hawking goods in the countryside to small towns and villages; they might also be called tinkers or gypsies...
for loans should be completely prohibited. The original provisions in the bill were indeed extremely stringent, and caused potential problems for other businesses, but were significantly amended and now only affect the canvassing they were intended to prevent. Canvassing is defined as a situation in which an individual (the canvasser) solicits the entry of another individual (the consumer) into an agreement based on his oral representations during a visit by the canvasser to "any place" for the purpose of making such representations. Exceptions to "any place" are places where business is carried out, either permanently or temporarily, by the creditor, owner, supplier, canvasser, employer of the canvasser or the consumer. There is no requirement that the oral solicitations take place in person - they can come over the telephone, or be trying to induce another individual to convince the consumer into entering an agreement.
Part V: Entry into credit or hire agreements
Part V of the Act deals with four elements of entering into a credit or hire agreement; pre-contract disclosure, the formalities of entry into a regulated agreement, cancellation of a regulated agreement and its consequences and withdrawal from a prospective regulated agreement and its consequences. In some cases, specific information must be disclosed before a contract is made, with the standard provision that contracts where this is not followed are unenforceable without an order from the courts.Formalities
There are certain formalities for entry into a regulated agreement, mostly based on the documentation that must be provided. Under Section 60, the Secretary of State is required to make certain regulations covering the format that contracts must take. These regulations must ensure that the debtor is made aware of the rights and/or duties conferred on him by the agreement, the amount and rate of the total charge for credit, the protection and remedies available to him and "any other matters which, in the opinion of the secretary of state, it is desirable for him to know about in connection with the agreement". The Act allows the Director General of Fair Trading to waive certain requirements if it appears, on the application of a consumer credit business, that to enforce them would be impracticable.Section 61 lays out the formalities required for a regulated agreement. The terms must be found in a signed and legible document, a copy of the unsigned agreement must be supplied to the debtor or hirer, a copy of the signed document must be supplied to the debtor or hirer and a notice advising the debtor or hirer of his rights of cancellation must be included with the signed and unsigned copies. The "signed and legible document" is described in Section 61 as a document which contains all the prescribed terms, other than implied terms, and is, when presented to the debtor or hirer for signature, in such a state that all its terms are legible. Such a document must be in the form "prescribed by regulations".
Withdrawals
Part V contains several provisions relating to the cancellation of a regulated agreement and the withdrawal from a prospective regulated agreement. These are similar to those found in the Hire-Purchase Act 1965, but cover all consumer credit and consumer hire agreements rather than the hire-purchase and instalment sale agreements previously covered. The withdrawal from a prospective agreement is found primarily at common lawCommon law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
; a party may withdraw from a prospective agreement at any point before it becomes a contract without obligations. He can withdraw the prospective agreement by notice to the other party, with the Act allowing the creditor to use credit brokers as agents for this purpose.
The right to cancel a confirmed agreement was introduced by the Hire-Purchase Act 1964, mainly to frustrate doorstep salesmen who would take advantage of an unsuspecting person and force them to sign up to an agreement, normally with misrepresentations. In the Consumer Credit Act, the right of cancellation is covered in Section 67, which allows the debtor or hirer the right to cancel an agreement if there were false oral representations made to the debtor by somebody acting for the creditor. The cancellation may be enacted by serving a notice of writing given to the creditor or an agent of the creditor within six days of the agreement being made.
Part VIII: Security
The Act was the first attempt by the Government of the United Kingdom to provide coherent rules relating to the taking of securitiesSecurity (finance)
A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...
when dealing with consumer credit. Other than the Bills of Sale Acts there had been little law on securities before this, apart from a few provisions in the Hire-Purchase Acts. The Consumer Credit Act devoted an entire part of the Act to security, mostly between debtor and creditor, with third-party rights and regulations mostly governed by common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
. The Act provides the form of securities, requires certain information and documents to be supplied, controls the enforcement of securities and provides certain circumstances in which securities can be considered void.
"Security" is defined by the Act to mean any form of mortgage, bond
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
, indemnity, guarantee or other right provided by the debtor as "security" to the consumer credit or hire-purchase agreement being conducted with the creditor. This covers both "real" securities such as mortgages and personal securities such as bonds. The only requirement is that the security must be given at the request of the debtor. Any security must be expressed in writing, and in some cases are part of the original hire agreement. This is distinct from previous law, which required a written note of the agreement but allowed the agreement to be conducted orally.
Certain other formalities must be observed; under Section 105, a security is not considered properly executed unless a document is signed on or on behalf of the debtor. This document must conform to certain regulations; the terms must be legible when it is presented to be signed, it must give all the terms and conditions other than implied terms, a copy must also be presented and if the security is provided before the regulated agreement is made, a copy of the security agreement must be given to the debtor within seven days of the regulated agreement being made. If the formalities are not complied with the security agreement becomes unenforceable without a court order. The Act does not provide for any civil or criminal sanctions for creditors who enforce the agreement without a court order, however, but it may lead to the revocation or suspension of the creditor's license.
Part IX: Judicial control
Part IX gives the courts wide powers to re-open credit deals deemed extortionate and gives them control over regulated agreements. Section 189 establishes that "courts" means the County CourtCounty Court
A county court is a court based in or with a jurisdiction covering one or more counties, which are administrative divisions within a country, not to be confused with the medieval system of county courts held by the High Sheriff of each county.-England and Wales:County Court matters can be lodged...
s; all problems are to be brought to the County Courts, although certain situations relating to extortionate credit agreements can be sent to the High Court
High Court of Justice
The High Court of Justice is, together with the Court of Appeal and the Crown Court, one of the Senior Courts of England and Wales...
.
Orders
The courts can also make "time orders" providing for either payment by the debtor of any sum owed to the creditor, remedying any breach of the agreement by the debtor other than non-payment of money or both. These orders are made at the discretion of the courts after an application for an enforcement order. The time orders can also cover statutory bailment
Bailment
Bailment describes a legal relationship in common law where physical possession of personal property, or chattel, is transferred from one person to another person who subsequently has possession of the property...
in the case of hire-order or hire-purchase agreements. If the court feels that the property in dispute or acting as security is at risk of damage or deprecation, they can give protection orders preventing the use of the property. This re-enacts Section 35 of the Hire-Purchase Act 1965, which was repealed by the Consumer Credit Act.
Other orders are "special orders", covered by Section 133 of the Act. There are two types; return orders and transfer orders. Return orders are orders from the court requiring the return of goods covered by the agreement to the creditor. These orders may be immediate or subject to a delay, and may give the debtor the option to pay the goods value to the creditor if he does not return the goods in time. Transfer orders are orders transferring the creditor's ownership of certain goods to the debtor, ordering the payment of the rest of the goods to the creditor. This can only be done if the debtor pays an amount of money equal or more than one third of the value of the returned goods.
Credit bargains
The courts have long held equitable jurisdiction to set aside "harsh and unconscionable bargains", but prior to the Consumer Credit Act this was mainly used in cases where uninformed tradespeople have been selling goods at a loss, and was rarely used in the 20th century. The Moneylenders Act 1900 allowed the court to re-open a moneylending transaction if there was evidence that interest rates were "harsh and unconscionable or otherwise such that a court of equity would give relief", unless the moneylender could justify the rates. It was rarely used in the field of consumer credit because it was limited to those sorts of consumer transactions covered by the Moneylenders Act, and did not cover hire-purchase agreements or instalment sale agreements or loan transactions from people who were not moneylenders, such as banks.The Consumer Credit Act provided guidelines for the court in determining whether a credit bargain is extortionate and extends the courts jurisdiction in this area to cover all credit agreements. If the court does believe the bargain was extortionate, it can re-open the agreement and examine the terms of it. If they decide it is indeed extortionate, they can set aside the remaining money owed, order the creditor to give money to the debtor, alter the terms of the agreement or order the return of any security. This only covers consumer credit agreements, not hire agreements.
Definitions
An ancillary credit business is defined in Section 145 of the Act as any business that works in credit brokerCredit broker
In business and law, a credit broker is a company or individual that deals in brokerage of consumer credit. Essentially a credit broker links somebody looking for consumer credit, a debtor with a company or individual willing to provide it, a creditor, normally for a commission. Credit brokers...
age, debt adjusting, debt collecting, debt counselling or as a credit reference agency.
Credit brokers are people involved in negotiating deals between potential debtors looking for credit and creditors, normally in exchange for a commission. Under the Act, "credit broker" includes not only mortgage broker
Mortgage broker
A mortgage broker acts as an intermediary whose brokers mortgage loans on behalf of individuals or businesses.Traditionally, banks and other lending institutions have sold their own products. However as markets for mortgages have become more competitive, the role of the mortgage broker has become...
s and loan brokers but also car dealers, shops that introduce customers to financial houses for hire-purchase agreements and solicitor
Solicitor
Solicitors are lawyers who traditionally deal with any legal matter including conducting proceedings in courts. In the United Kingdom, a few Australian states and the Republic of Ireland, the legal profession is split between solicitors and barristers , and a lawyer will usually only hold one title...
s who negotiate advances for non-corporate clients. An exception to this is if introductions and negotiations are not made in the individual's capacity as an employee of a business.
Debt adjusting is when a company or individual negotiates with the creditor or owner in an agreement on behalf of the debtor to change the terms for the discharge of the debt, takes over the debt in exchange for payment by the debtor or engages in "any similar activity concerned with the liquidation of a debt".Pieheads This is again a wide area; the base definition covers, for example, solicitors and accountants who act as negotiators for clients who owe money to a third party. There are certain exceptions; a solicitor negotiating for the settlement of his client's debts is not considered to be working as a debt adjuster thanks to Section 146 of the Act, which excludes "a solicitor engaging in contentious business" as defined in the Solicitors Act 1957.
Debt counselling is the giving of advice to debtors or hirers about the liquidation of debts under consumer credit or consumer hire agreements. This covers any debt counsellor, regardless of if it is free legal advice; as a result the Citizens Advice Bureau
Citizens Advice Bureau
A Citizens Advice Bureau is one of a network of independent charities throughout the UK that give free, confidential information and advice to help people with their money, legal, consumer and other problems....
, for example, is considered a debt counsellor, although its advisers are covered by a group license. Debt collectors are covered by similar provisions, and are defined as anybody who takes steps to "procure payment of debts due" under consumer credit agreements and consumer hire agreements. Those who "purchase" debts and attempt to collect on them are covered by this definition.
Exceptions for these definitions are provided under Section 146 if the credit broker, debt adjuster, debt counsellor or debt collector is the creditor or owner under the credit agreement, the supplier under the agreement, a credit broker who has acquired the business of the supplier or somebody expressly excluded from certain definitions, such as a solicitor
Solicitor
Solicitors are lawyers who traditionally deal with any legal matter including conducting proceedings in courts. In the United Kingdom, a few Australian states and the Republic of Ireland, the legal profession is split between solicitors and barristers , and a lawyer will usually only hold one title...
. The provisions for suppliers only come into effect when the credit is a loan, so that the supplier and creditor are different people. The exceptions do not include people who "buy" the roles above by purchasing the debts, such as professional debt buyers or financial houses.
Credit reference agencies are covered separately from other ancillary credit businesses, and are defined in Section 148 as individuals or companies which carry on a business "comprising the furnishing of persons with information relevant to the financial standard of individuals, being information collected by the agency for that purpose". This definition was the subject of much academic debate, because the holding of the license for a credit reference agency involves a duty to supply information on credit status which the company might prefer to keep confidential. There are exceptions; the information must be collected for the purpose of giving it to others, so the fact that a bank, for example, has that information, does not mean they need to obtain a license as a credit reference agency.
Licensing and other matters
Part III of the Act applies directly to ancillary credit businesses, who must obtain a license. As with standard credit agreements, agreements made by an unlicensed ancillary trader are only enforceable against the other party if the Director General of Fair Trading issues an order which applies to the agreement. Under Section 149, creditors have an onus to make sure that the credit brokers they obtain business from are duly licensed. Again, if the broker is unlicensed, the agreement between the debtor and creditor is only enforceable when the Director General makes an order saying so. These provisions came into effect on 1 July 1978.Part IV of the Act also applies to ancillary credit businesses in relation to advertising, canvassing and quotations, as well as ways in which business can be sought. The Act also limited the brokerage fees that credit brokers can charge. Under Section 155, if the brokerage work does not lead to the client entering into an agreement with a creditor within 6 months of the work, the entire fee (minus the sum of £1) is refundable to the client. The Director General at the time indicated that those businesses which flouted Section 155 would be refused a license. These provisions came into force on 1 April 1977.
Implementation of the Act
Some elements of the Act came into force on 31 July 1974, the day it was passed, but many were left to be brought in later at the discretion of the government. This process was "painfully slow", with almost nothing apart from the licensing system being active in 1979. Section 141, which requires enforcement actions of a regulated credit or linked transaction to be pursued in the county courtCounty Court
A county court is a court based in or with a jurisdiction covering one or more counties, which are administrative divisions within a country, not to be confused with the medieval system of county courts held by the High Sheriff of each county.-England and Wales:County Court matters can be lodged...
s, came into force on 19 May 1985 through the Statutory Instrument "Consumer Credit Act 1974 (Commencement No. 8) Order 1983". The Act repealed the Hire-Purchase Act 1965, the Advertisements (Hire Purchase) Act 1967, the Moneylenders Act 1900, the Moneylenders Act 1927, the Pawnbrokers Act 1872 and the Pawnbrokers Act 1960. The Act was influential outside the United Kingdom, and was studied in both the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
and the Commonwealth of Nations
Commonwealth of Nations
The Commonwealth of Nations, normally referred to as the Commonwealth and formerly known as the British Commonwealth, is an intergovernmental organisation of fifty-four independent member states...
. It formed the basis of a 1979 Directive on Consumer Credit of the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
.
The Act did not go to the full extent suggested by the Crowther Committee's report, with protection only being available for consumers, not for the credit industry.
The Act was widely supported by all sides of the political spectrum, and by academia. Arthur Rogerson compared it to the Law of Property Act 1925
Law of Property Act 1925
The Law of Property Act 1925 is a statute of the United Kingdom Parliament. It forms part of an interrelated programme of legisation introduced by Lord Chancellor Lord Birkenhead between 1922 and 1925. The programme was intended to modernise the English law of real property...
in that, like the 1925 Act, it "represents fundamental rethinking of an area of great economic significance, which has resulted in the sweeping away of a chaos of obsolete rules, and the substitution for them of a simpler and better enforced body of law".
See also
- Consumer Credit Act 2006Consumer Credit Act 2006The Consumer Credit Act 2006 is an Act of the Parliament of the United Kingdom intended to increase consumer protection when borrowing money.-Provisions:...
- Credit riskCredit riskCredit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Other terms for credit risk are default risk and counterparty risk....
- Wilson v First County Trust Ltd (No 2)
- Director General of Fair Trading v First National Bank plcDirector General of Fair Trading v First National Bank plcDirector General of Fair Trading v First National Bank plc [2001] is the leading case on the Unfair Terms in Consumer Contracts Regulations 1999. It was an action to test the fairness of clauses in loan agreements which secured a bank commercial interest rates after a debtor that had defaulted and...
[2001] UKHL 52