Topic 22 Flashcards
Who does the Consumer credit act 1974 apply to?
those providing credit;
advice on obtaining credit;
advice on repaying debts.
What credit sources are covered by the Consumer credit act 1974?
personal loans;
overdrafts;
hire purchase;
credit cards;
store cards.
What are the main provisions of the consumer credit act 1974?
FCA licensing
Advertisements and credit agreements
APR
Loan agreement
Cooling‑off period
Credit reference agencies
Default, termination or early settlement
‘Extortionate’ rates of interest or charges
What two main factors are specified under the consumer credit act 1974 when calculating APR?
the interest rate – whether it is charged on a daily, monthly
or annual basis;
the additional costs and fees charged when arranging the
loan, such as an application fee.
What products does Annual percentage rate of charge (APRC) apply to?
1st and 2nd charge lending
How did the Consumer credit act 2006 modify the 1974 act?
The definition of ‘individuals’ covered under the Act was widened from ‘natural persons’ to include unincorporated associations, small partnerships (with three partners or fewer) and sole traders.
The scope of the Financial Ombudsman Service (FOS) was expanded to cover consumer credit agreements.
An Unfair Relationships Test was introduced, enabling borrowers to challenge a credit agreement in court, on the basis that the nature of the relationship between borrower and lender is unfair. This replaced the concept of ‘extortionate’ credit. Courts were given the power to vary a credit agreement if it was deemed unfair to the borrower. When introduced in April 2007, the Unfair Relationships Test only applied to new loans taken out from that date; it was extended a year later to cover new and existing loans.
The upper limit of £25,000 on the size of loans regulated by the Act was removed, meaning all new credit agreements entered into by individuals are regulated.
An exemption from CCA provisions was introduced for high‑net‑worth
borrowers, with the definition of a high‑net‑worth individual detailed in
the Act.
It improved the regulation of consumer credit businesses by ensuring fair practices and taking action to remove dishonest providers.
Additional rules required lenders to provide borrowers with more
information about their accounts on an ongoing basis, such as annual
statements and, if applicable, arrears notices.
Consumer credit regulation was extended to debt administration services and credit information services.
What are the key changes brought about by the EU credit directive?
A representative example must be included as part of any advertisement that shows an interest rate or a figure relating to the cost of credit. This example must include a ‘representative’ APR.
Creditors must assess a borrower’s creditworthiness before granting credit or significantly increasing the amount of credit.
‘Adequate explanations’ must be provided in respect of a proposed credit agreement, to enable the borrower to assess whether the agreement meets their needs.
Certain information must be provided to a borrower before they enter into a credit agreement, and there are standards for the way in which that information must be provided. Pre‑contractual information must be given in good time before the borrower enters into the agreement, and the information must be clear and easily legible.
The borrower has the right to withdraw from a credit agreement within a period of 14 days (the cooling-off period) from the conclusion of the agreement, or from the point the borrower receives the agreement, if this is later
The borrower must be notified, in writing, of changes to the interest rate under the agreement, before the change takes effect.
The borrower is able to seek redress from the creditor in certain
circumstances if they are unable to obtain satisfaction from the supplier of the goods or services. This applies in cases where the CCAs would not normally provide for such redress, and where the value of goods or services is more than £30,000 and the credit does not exceed £60,260.
The borrower can terminate an open‑ended agreement at any time, subject to giving one month’s notice. The creditor must give two months’ notice of termination of credit and must give justified reasons for termination.
The borrower must be informed if the debt is to be sold to a third party.
Credit intermediaries must disclose the extent to which they are acting independently or work exclusively with one or more creditors. Any fee payable to the intermediary must be disclosed up front.
Where an application for credit is declined based on information supplied by a credit reference agency, the creditor must notify the borrower and provide contact details of the credit reference agency.
What is a credit intermediary?
Helps an individual to obtain credit, eg by helping them to complete a
loan application, or find the lender offering the best rates or willing to
lend to those with a poor credit history.
When the FCA took over responsibility for consumer credit regulation from the Office of fair trading (OFT) how was the FCA’s approach more rigorous?
Consumer credit firms must be authorised by the FCA.
The FCA maintains a register of firms that have been granted a consumer credit licence.
FCA conduct rules apply, such as the high‑level Principles for Businesses – for example, financial promotions must be clear, fair and not misleading.
The FCA expects firms that offer consumer credit to demonstrate how they ensure the fair treatment of their customers.
The FCA has greater supervisory powers than the OFT had. The FCA uses its senior managers and certification regime for individuals performing roles that require FCA approval or certification.
The FCA also has much greater powers than the OFT had with regard to investigation, enforcement and redress. It has dedicated supervision and enforcement teams to tackle poor practice in the industry.
What activities require full permission from the FCA under consumer credit?
Credit broking
Debt administration
Debt collecting
Debt counselling
Debt adjusting
Lending that is not ‘limited permission’
Credit information services
Credit reference agency services
P2P lending
What is CONC 1?
Application and purpose and guidance on financial
difficulties
What is CONC 2 and the key elements?
Conduct of business standards – general
In respect of their credit‑related activities, all providers are expected to
treat customers fairly and not mislead them. Examples of activities that may contravene these rules are:
targeting customers with offers of credit that are unsuitable for them;
high‑pressure selling, aggressive or oppressive behaviour or coercion;
not allowing sufficient and reasonable time to make repayments;
taking steps to repossess a customer’s home other than as a last resort.
What is CONC 3?
Financial promotions and communications with
customers
What is CONC 4?
Pre‑contractual requirements
What is CONC 5?
Responsible lending
