topic 22 - consumer credit

Question 1

The Consumer Credit Act 2006

Answer 1

• covers the regulation of certain loans to individuals, small partnerships (3 or fewer partners) and unincorporated bodies (not companies).
• Sets out standards by which lenders must conduct their business

Question 2

Annual percentage rate (APR)

Answer 2

• Must be quoted for all regulated loans
• Represents a measure of the total cost of borrowing – allowing a fair comparison between different lenders
• Calculation is specified under the Consumer Credit Act 1974 – takes into account the interest rate and the additional costs and fees charged when arranging the loan

Question 3

Annual percentage rate of charge (APRC)

Answer 3

Applies to mortgage lending

Question 4

The Consumer Credit Directive (CCD)

Answer 4

• Representative APR must apply to at least 51% of successful applicant for the credit product
• Must assess creditworthiness
• Pre-contractual information must be given
• Borrower has right to withdraw within 14 days
• Creditor must give 2 months’ notice, and they must explain reasons for termination

Question 5

FCA consumer credit regulation and authorisation

Answer 5

• Consumer credit firms must be authorised by the FCA
• Maintains a register of firms that have been granted a consumer credit licence
• FCA conduct rules apply
• Expects firms to comply with the Consumer Duty and demonstrate it

Question 6

High-cost, short-term credit

Answer 6

• FCA introduced a cap on high-cost, short-term credit.
  o Interest rates must not exceed 0.8% per day of the amount borrowed
  o default fees cannot exceed £15
  o must never be required to repay more than 100% of the amount borrowed by way of fees and charges

Question 7

Limited permission

Answer 7

• covers lower-risk activities
• Aimed at businesses outside financial services that are caught by the consumer credit legislation and regulations
• Cannot apply for full FCA authorisation and required to supply less information to the FCA than full authorisation

Question 8

Full permission

Answer 8

• Credit - broking, information services, reference agency services
• debt - administration, collecting, counselling, adjusting
• P2P lending
• Lending that is not limited permission

Question 9

How does providing an APR in relation to consumer credit help consumers?

Answer 9

It allows consumers to compare products more accurately, as the APR includes not only the interest rate but also any fees and charges that apply to the product

Question 10

Businesses are not protected by the provisions of the Consumer Credit Acts. True or false?

Answer 10

false - Partnerships with three partners or fewer and sole traders are covered by the CCAs, as well as ‘ordinary’ borrowers and unincorporated associations

Question 11

How long is the cooling off period for a customer once they have signed a consumer credit agreement?

Answer 11

Fourteen days from the conclusion of the agreement, or from the point the consumer receives the agreement if this is later

Question 12

If a lender rejects an application on the basis of information from a credit reference agency, what must the lender do?

Answer 12

Advise the applicant of the reason for rejecting their application and provide details of the credit reference agency used.

Question 13

A charity that provides debt counselling services must have full permission from the FCA. True or false?

Answer 13

False. Full permission is required for debt counselling services that are carried out on a commercial basis

Question 14

What is the maximum that a borrower can be required to repay to a high cost, short term lender in fees and charges?

Answer 14

100% of the original amount borrowed

Question 15

Interest rates provided in an advertisement for consumer credit must include what?

Answer 15

A representative example that includes a representative APR

Question 16

Which previously unregulated area of consumer credit now falls under the provisions of CONC 7?

Answer 16

Debt collection and debt administration