What is the Consumer Credit Act?

The Consumer Credit Act is an important piece of legislation that protects the rights of consumers and sets out how most retail lending and credit is handled in the UK.

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

The following are all types of debt and credit regulated by the Consumer Credit Act:

• Credit cards
• Hire purchase agreements
• Payday loans (see our Guide to payday loans)
• Personal loans
• Store cards 

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

These are referred to as ‘unregulated’ debts and include:

• Buy Now Pay Later finance
• Certain types of business debts
• Charge cards (these are not credit cards)
• Debts to individuals (including family and friends)
• Debts to local Government (such as council tax, benefit overpayments, etc.)
• Debts to unlicensed lenders (such as loan sharks)
• Mortgages 
• Some credit union loans.

The CCA covers several areas under the broad heading of consumer credit and hire agreements. These include:

• What information people are provided with 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
• Clear instructions on what happens for defaults, terminations and early repayments
• Rules on how credit is advertised
• Section 75 – 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-licenced credit reference agency.

For more information about interest rates, see our guide What is an APR?

There are certain items of information that creditors must supply you with prior to providing any form of credit covered by this act:

• How long the agreement is for
• How much repayments will be and when they are to be made
• The amount of credit or the credit limit
• The APR, interest rate charges and anything else applicable to the interest rates to be charged
• The identity and address of the credit provider
• The name and address of the credit intermediary (if applicable)
• The nature of the agreement
• The total amount that is payable
• The type of credit being agreed to.

The CCA covers both credit agreements that you take out at a lender’s premises and those that you enter ‘at a distance’. These are credit agreements you take out online, over the phone, in your own home with a representative or elsewhere, such as a ‘pop-up’ business stand.

In addition to the key details given above, you must be given certain information in good time before the credit agreement can be considered legally binding:

• The creditor’s name and address
• A description of the main characteristics of the credit agreement
• The total price payable for the credit
• What the arrangements are for repayment
• Details of your right to withdraw from the agreement

The CCA understands that for credit agreements at a distance, consumers might be making a decision that is hasty or ill thought out. For this reason, the CCA provides consumers with a ‘cooling-off period’ during which they have the right to cancel a credit agreement within five days of application if it was signed away from the lender’s premises but in person i.e. at a pop-up stand.

Creditors must provide a copy of your cancellation rights with the credit agreement. This must be sent by either post or email within seven days. You then have a further five days (not including the day you received these documents) to cancel.

If you do decide to cancel then the credit agreement is treated as if it never existed. You must repay any monies or return any goods that you have received, and the loan company will repay any monies you have paid to them.

The CCA gives you the right to withdraw from any credit agreement within 14 days of acceptance or when you receive a copy of the agreement, if that agreement was arranged by phone, by post or online. For credit cards, this is 14 days after you have been advised of your credit limit.

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.

If this is a hire purchase agreement for say, a car, then you must find another way to pay the vendor or return the goods immediately.

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

If you are already beyond the cooling-off period, you might find our guide want to cancel your credit card? helpful.

Credit reference agencies are used by lenders to check the credit history of those applying for credit. The main three in the UK are TransUnion, Equifax and Experian.

The information that these credit references hold on you is referred to as your credit file. Under the CCA, you have the right to see this file and ensure that it is correct and accurate.

By paying just £2, you can request your full credit file from a credit reference agency and, if you find details that are incorrect, you can ask that these are amended under the Consumer Credit (Credit Reference Agency) Regulations 2000.

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

Should you decide to pay off a credit agreement early, in full or partially, then the CCA states that you should not have to pay the full amount of interest as shown in the original credit agreement – instead you are entitled to a statutory interest rebate.

Once you have written to your creditor advising that you’d like to clear the debt (or advising how much you’d like to pay off) they have seven days to get back to you with a ‘settlement figure’. This is the sum you owe plus the interest owed less the statutory interest rebate they must apply.

This is the part of the CCA that provides consumer protection for purchases made with a credit card that are over £100 but no more than £30,000.

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

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).

There are several routes for complaints under the CCA, but your first step should usually be to contact the lender or creditor themselves. Write or email (so you have a record of your complaint) outlining your issues under the CCA.

If you don’t receive a satisfactory answer, or you’ve already tried this to no avail, then you can refer the matter to the Financial Ombudsman.

A guide to credit card interest

Beware of credit card cash advances