What is the Consumer Credit Act?

What is the Consumer Credit Act?

The Consumer Credit Act is an important piece of legislation that protects the rights of consumers and regulates how most retail lending and credit is handled in the UK. It was initially introduced in 1974 and was amended in 2006.

This legislation sets out how businesses that lend money or offer goods and services on credit should conduct their business and advertise those products, as well as requiring them to be licensed by the Financial Conduct Authority (FCA).

The Consumer Credit Act, and other related pieces of legislation such as the Financial Services and Markets Act 2000, cover many different areas, including:

• the pre-contract information providers need to give consumers before they take out any form of credit
• key elements that must always be shown in consumer credit agreements
• how annual percentage rates (APRs) should be calculated
• instructions on what happens for defaults, terminations and early repayments
• rules on how credit is advertised
• additional protection for credit card purchases costing more than £100 but less than £30,000.

In addition, before a credit agreement is granted (or the amount borrowed is significantly increased), the lender must assess the consumer’s creditworthiness. This must be done using information that the consumer has supplied, as well as an FCA-licensed credit reference agency, where necessary.

What agreements does the Consumer Credit Act cover?

The following are some of the credit agreements that are regulated by the Consumer Credit Act:

• Credit cards
• Hire purchase agreements
• Personal loans (including payday loans)
• Store cards

Secured loans may also be covered, but not if they are secured on a person’s main residence, as these are classed as FCA-regulated mortgages.

What agreements are not covered by the Consumer Credit Act?

The Consumer Credit Act doesn’t regulate the following types of debt:

• Buy now, pay later finance
• Charge cards (these are not credit cards)
• Mortgages and loans secured against your property
• Loans between individuals (including family and friends)
• Debts to local Government (such as council tax, benefit overpayments, etc.)
• Debts to unlicensed, illegal lenders (such as loan sharks)
• Some credit union loans
• Certain types of business debts.

Pre-contract information

Creditors must give you certain pieces of information before they can provide any form of credit covered by this act, including:

• the length of the agreement
• the amount of credit supplied, or the credit limit
• the interest rate and APR, as well as any other charges that may apply
• the total amount payable, how much the repayments will be and when you need to make the payments
• details of your right to withdraw from the agreement
• the identity and address of the credit provider and, if applicable, the credit intermediary.

During the agreement, creditors should also send you regular statements and notify you if you fall behind on repayments.

The right to withdraw from a credit agreement

The Consumer Credit Act gives you the right to withdraw from any regulated credit agreement, whether it was arranged in person, by phone, by post or online.

You typically have 14 days after signing the agreement (or receiving a copy of the agreement) to withdraw, although this can vary. This is known as a cooling off period.

However, the right to withdraw does not apply to all agreements, including those secured on land or where the credit amount exceeds £60,260.

Creditors must provide a copy of your cancellation rights with the credit agreement.

If you decide to cancel, you must repay any monies advanced to you, along with any interest that has accumulated up to the point that you cancel the agreement. You will have 30 days to do this.

If you want to cancel a hire purchase agreement for a car or other item, you must find another way to pay the vendor or return the goods.

Early repayment rules

If you decide to pay off a credit agreement early, in full or partially, the Consumer Credit Act states that you should pay less interest than if you continued to make payments as shown in the original credit agreement.

Under the Consumer Credit (Early Settlement) Regulations 2004, creditors are allowed to apply up to 28 days’ interest on agreements of 12 months or less, or 58 days’ interest on agreements longer than this.

Once you have contacted your creditor to say that you’d like to pay off your debt, it will give you an ‘early settlement figure’. This is the sum you need to pay to clear your debt and is made up of the capital you borrowed plus the adjusted interest charges.

The right to see your credit file

The Consumer Credit Act gives you the statutory right to view your credit file. Your credit file, or report, is held by credit reference agencies and is used by lenders to check the credit history of those applying for credit.

The main three credit reference agencies in the UK are TransUnion, Equifax and Experian.

It’s possible to check your credit score and full report from all three agencies for free.

If you spot any errors on your credit report, you can ask the credit reference agency to amend these.

Within 28 days, the agency must advise if they have removed or amended the entry or taken no action.

As well as identifying any errors, regularly checking your credit report can help you pinpoint ways to improve your credit score.

Section 75 of the Consumer Credit Act

Section 75 of the Consumer Credit Act provides extra protection on credit card purchases that are over £100 but no more than £30,000. This includes purchases of physical items as well as services such as flights.

For example, imagine you have paid £3,000 for a new sofa with your credit card. If you subsequently discover that there is a fault with your sofa (or maybe it just fell apart!) you would first ask for your money back from the seller. However, this may not be possible if the vendor has ceased trading, for example.

In these circumstances, Section 75 allows you to claim instead from your credit card provider – ensuring you are not left out of pocket. This protection also applies if the goods simply don’t turn up or are faulty.

Only credit card transactions are covered under this legislation, not debit cards, charge cards or cash (even if you draw the cash out from your credit card account).

It also only usually applies if you buy from a company directly, not if you purchase via a third-party.

Complaints

If you experience a problem with a lender or other credit provider, you can complain about them to the Financial Ombudsman Service.

While you should always contact the provider directly if you have a dispute or complaint, you can turn to the Financial Ombudsman if you’re not happy with the response (or if you get no response).