22) CONSUMER CREDIT Flashcards
What are the Consumer Credit Acts? (CCA)
Legislation governing consu credit in UK by CCA 1974 & 2006
1974 estd basic princi of consu cr reguln
2006 consolidated, expanded and made up to date
Who is respon for enforcement of CCAs
FCA
CCA 1974 applies to…?
CCA 1974 purpose is to regulate, supervise and control certain types of lending to indiv and protect them from unscrupulous lending practices. Act applies to 1/ those providing credit 2/ advice on obtaining cr 3/ advice on repaying cr
(applies to credit upto £25000)
Credit means * personal loans * overdrafts
* hire purchase *credit cards * store cards
Does CCA regulate mortgages?
No, MCOB regulates mortgages
What are the main provisions of CCA 1974?
- ..FCA licensing - must be FCA licensed
- ..Advertisement and cr agreements - form and content upto specified stds
- ..Loan agreement -Clients to receive copy of agreemt
- ..Cooling off prd - can decide not to go ahead
- ..Credit Ref Agencies - must on request disclose info held on indi, must correct that info if shown to be inaccurate
- ..Default, termination or early settlement - defined procedure
- ..Extortionate ROI or charges - powers for courts to grant relief to borrowers who have entered into cr agreemt with extortionate ROI/charges
What was the most significant innovation of CCA 1974?
A sys for comparing price of lending, which is APR (annual percentage rate). It must be quoted for all regulated loans
APR represents a measure of the total cost of borrowing and its aim is to allow a fair comparison betn diff lenders, of overall cost of borrowing
APR calcu takes into acc two main factors
1…interest rate - whether daily, monthly, or annual basis
2…additional costs and fees charged eg application fee
As a result APR is higher than the interest rate being charged on the loan
What is Annual Percentage Rate of Charge? APRC
Refers to mortgages under provisions of EU Mortgage Cr Directive and applies to first and second-charge mortgage lending
What changes did CCA 2006 bring to CCA 1974?
Mainly,
__defn of indiv extended from ‘natural persons’ to unincorporated assoc, small prtnships(3 or less) and sole traders
__FOS scope extended to cover CCA
__Unfair Relationships Test introduced, - borrowers can challenge cr agreemt in court, replaced ‘extortionate’ cr from CCA 1974, courts given powers to vary a cr agmt if deemed unfair to borrower (1st only to new loans but later incl new and existing loans
__Limit of £25k loan size removed, all cr agmt by indiv regulated
__high-net-worth borrowers exempted from CCA provn
__cr providing busi regln to ensure fair practices, action against dishonest providers
__Lenders to provide ongoing info to borrowers such as statements, arrears notice etc
__regulation extended to debt administration service and credit information services
What is Consumer Credit Directive?
CCD adopted by EU 2008, implmented Feb 2011
Imple in UK and applies to all cr agrmt regulated under CCAs (not those secured on land)
__Any advert shd have ‘representative APR’
__Borrower’s creditworthiness assessed by lender before granting or increasing credit
__‘Adeq explana’ to be provi reg a proposed cr so borrower can assess it meets their needs
__Certain info provided in wh follow std to borrower before cr agrmt. Pre-contractual info must be given in good time before entering into agrmt - info clear and easily legible.
__14 days cooling off prd for borrower to withdraw
__ROI changes must be sent in writing to borrower before changes take place
__Redress can be sought from creditor if unable to obtain satis from goods and serv - where CCAs would not normally provide redress, and hwr value of goods &serv is >£30k and credit does not exceed £60,260
__An open ended agrmt can be terminated by borrower any time w one month’s notice - creditor to give two months’ notice and must give justified reasons for termination
__Borrower to be informed if debt is sold to 3rd party
__Credit intermediaries to disclose if they are indep or working with one or more creditors exclusively..fee payable to intermediary disclosed up front
__Whr appln for cr declined based on info by CR agency, creditor must notify borrower and provide contact details of CRA
What is Representative APR?
An APR that applies to 51 per cent or more of successful applicants for the credit product
Who is a credit intermediary?
An intermediary helps an indi obtain credit, either by helping complete and appln, find lender for poor credit history or one with best rates
How does FCA regulate and authorise CCAs?
(FCA took over from Office of Fair Trading (OFT) on 01 April 2014
CC firms must be authorised by FCA
FCA maintains register of firms granted CC licence
FCA expects firms to demonst fair treatment of cust
FCA uses Snr Mgrs & Certfn Regime for roles req FCA approval or certfn
FCA has dedicated supervsn and enforcement teams to tackle poor practice in credit industry
What cap was introduced by FCA for high-cost, short-term credit? (payday lenders)
FCA introduced cap on 2 Jan 2015
- Int and fees charged must not exceed 0.8 per cent per day of the amount borrowed, default fees not to exceed £15, borrowers never reqd to pay more than 100 per cent of the amount of borowed by way of fees and charges
List credit acti requiring full permission from FCA
Debt administration -Debt collecting
Debt counselling (commercial basis)
Debt adjusting ( “ “ )
Credit infor services
Credit Reference Agency services
P2P lending
Lending that is not ‘limited permission’ (lower risk acti - cannot apply for full FCA reguln)
Credit broking (Whr introducing customers to lending is main busi or where sale of goods and serv takes place in the cust’s home - a domestic premises supplier)
Give summary of Consumer Credit Sourcebook
(CONC)
(UK consumer credit regulation)
CONC 1 : Appln and purpose and guidance on finanl difficulties- reminds firms of eleven Principles of Businesses, guidance for indicators that a cust is in finanl difficulty
CONC 2: Conduct of busi stds - general
Busi to treat cust fairly and not mislead them - not to target cust w offers of cr that are unsuitable for them
- no high-pr selling, coercion
-not allowing sufft and reasonable time to make repayments - steps to repossess a cust’s home only as last resort
CONC 3: Finanl promo and comms with cust
Explains what is ‘communication’ in reln to cr agrmt, comms shd be fair and not misleading - use os plain, understandable language, to make clear who is making the offer of cr- and shd be based on cust finanl circums
Reg payday lenders must carry msg “Warning: Late repayment can cause you serious money problems. For help go to moneyadviceservice.org.uk”
CONC 4: Pre-contractual requirements
deals w quotations for credit and relevant ‘health warnings. If home is used as security must include “your home is at risk if you do not keep up repayments on a mortg or other loan secured on it” - Lender shd provideinterests,, charges, costs shd the borrower be unable to pay
