6 - The consumer credit Acts and the lending code

Question 1

What is the main piece of legislation that covers consumer credit and aims to provide
protection for the consumer by licensing credit providers and other organisations?

Answer 1

The Consumer Credit Act 2006 reformed the Consumer Credit Act 1974.

Question 2

How does the consumer credit act aim to create a fairer and more transparent credit market?

Answer 2

• Enhancing consumer rights and redress
• Improving regulation by streamlining the licensing system.
  -Making regulation more appropriate for different types of transactions.

Question 3

How does the credit consumer act define ‘credits’?

Answer 3

Any form of financial accommodation where goods and services are sold to a buyer without any immediate payment.

Question 4

What are the two types of credit agreements?

Answer 4

• restricted use – these apply to the acquisition of goods and services.
• unrestricted use – these apply to obtaining cash loans that can be used for any purpose.

Question 5

When is a consumer credit agreement established?

Answer 5

When the person granting the loan provides the person obtaining the loan with the credit.

Question 6

How many partners can a partnership have to fall under the term ‘individual’ in the consumer credit act definition?

Answer 6

3 or less.

Question 7

To fall in the consumer credits act definition of ‘individual’ how much must the loan be under?

Answer 7

There is no limit.

Question 8

What are the two exemptions to the ‘no limit’ for individuals under the consumer credit act?

Answer 8

• where the lending is to a business and is for over £25,000
• where the lending is to a high net worth borrower who has provided a valid declaration of their high net worth.

Question 9

To qualify for exemption of ‘individual’ due to lending to a business over £25k what must happen?

Answer 9

the agreement contain a declaration which is signed by the debtor.

Question 10

If a borrower is claiming high net worth exemption what must they supply the lender?

Answer 10

statement which evidences that:
* for the last financial year, either their net income after tax and national insurance
was more than £150,000, or
* their net assets exceeded £500,000 but this cannot take into account the value of
the borrower’s house, certain life assurance policies or pension entitlements.

Question 11

What does APR stand for?

Answer 11

Annual percentage rate

Question 12

What must happen is APR is included in advertisment?

Answer 12

It must be more prominent than all other financial information

Question 13

How are banking licences granted?

Answer 13

On an ongoing basis with the capacity for the FCA to review or limit at any time.

Question 14

What does the consumer rights act 2015 cover?

Answer 14

what should happen when goods are faulty
* what should happen when digital content is faulty
* how services should match up to what has been agreed,
* unfair terms in a contract
* what happens when a business is acting in a way which isn’t competitive
* written notice for routine inspections by public enforcers, such as Trading Standards
* greater flexibility for public enforcers,

Question 15

Who can help with disputes that are quicker and cheaper than going through courts?

Answer 15

Certified alternative dispute resolution providers.

Question 16

What does BCOBS stand for?

Answer 16

Banking conduct of business sourcebook

Question 17

When did BCOBS come into force?

Answer 17

1/11/2009

Question 18

Who does BCOBS apply to?

Answer 18

Firms carrying out the activity of accepting deposits from banking customers in the UK. (I.e saving and current accounts).

Question 19

BCOBS contains rules and guidance on?

Answer 19

• communications with banking customers and financial promotions
• distance communications, including the requirements of the Distance Marketing Directive and E-commerce Directive
• information to be communicated to banking customers, including appropriate information and statements of account
• post-sale requirements
• unauthorised and incorrectly executed payments
• cancellation, including the right to cancel and the effects of cancellation.

Question 20

where a retail banking service is not a payment service within the scope of the PSRs, what applies?

Answer 20

BCOBS applies in full

Question 21

where a retail banking service is a payment service within the scope of the PSRs, what does it mean for BCOBs?

Answer 21

Parts of BCOBS would not apply.

Question 22

What is the lending code?

Answer 22

This is a voluntary code of practice which sets out standards for financial institutions.

Question 23

Who does the lending code cover?

Answer 23

• Consumers
• Small businesses employing fewer than 10 people and with a turnover of less than €2M
• Charities with an annual income of less than £1M.

Question 24

What does the Code deal with?

Answer 24

• Loans
• Credit cards
• Charge cards
• Current account overdrafts

Question 25

What does the lending code not apply to?

Answer 25

-merchant services,
-non-business borrowing secured on land
-sales finance.

Question 26

Compliance to the lending code is monitored independently and enforced by?

Answer 26

The lending code standards board

Question 27

What are the key commitments to the lending code?

Answer 27

-Subscribers will make sure that advertising and promotional literature is fair
-Customers will be given clear information about accounts and services
-Regular statements will be made available to customers
-Subscribers will lend money responsibly
-Subscribers will deal quickly and sympathetically with things that go wrong
-Personal information will be treated as private and confidential
-Subscribers will make sure their staff are trained to put this Code into practice.

Question 28

A credit agreement for cash loans that can be used for any purpose is called:
A a regulated agreement
B a restricted use agreement
C an unrestricted use agreement
D an unregulated agreement

Answer 28

C - an unrestricted use agreement

Question 29

The upper limit for a loan to an individual to be regulated by the Consumer Credit Act is:
A £25,000
B £50,000
C £75,000
D there is no upper limit

Answer 29

D - there is no upper limit

Question 30

Which one of the following products/services falls within the scope of the Lending Code?
A mortgages
B investments
C overdrafts
D insurance

Answer 30

C - overdrafts

Question 31

Under the terms of the Consumer Credit Act, a credit agreement for a cash loan that can be used for any purpose is:
a) unlimited use
b) unrestrained use
c) unrestricted use
d) limitless use

Answer 31

c) unrestricted use

Question 32

The Consumer Rights Act 2015 updated a number of changes to existing laws, but which area of law was introduced for the first time?

Answer 32

d) Rights regarding digital content