Unit 2 Topic 22 - Consumer Credit Flashcards

1
Q

What does the Consumer Act 1974 apply to?

A
  • Those providing credit
  • Advice on obtaining credit
  • Advice on repaying debts
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2
Q

What does the provision of credit include (Consumer Credit Act 1974)?

A
  • Personal loans.
  • Overdrafts
  • Hire Purchase
  • Credit Cards
  • Store Cards
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3
Q

What product is exempt from the Consumer Credit Act?

A

Regulated mortgages as they are covered by MCOB, regardless of the purpose of which they are required.

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4
Q

What is the limit the Consumer Credit Act 1974 regulates?

A

£25,000.

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5
Q

What are the two main factors that are taken into account in the calculation of APR?

A
  • The interest rate - whether it is charged on a daily basis, monthly or annual basis.
  • The additional costs and fees charged when arranging the loan, such as an application fee.
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6
Q

What is APRC and how does it differ from APR?

A

Annual Percentage Rate of Change.

Applies to first- and second-charge mortgage lending. APR applies to personal loans, credit cards and hire purchase agreements.

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7
Q

How did the Consumer Credit Act 2006 modify the definition of ‘individuals’?

A

Individuals under the Act widened from ‘natural persons’ to include unincorporated associations, small partnerships (with three partners or fewer) and sole traders.

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8
Q

What did the Financial Ombudsman Service (FOS) increase the scope to include under the Consumer Credit Act 2006 ?

A

Expanded to cover Consumer credit agreements.

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9
Q

Outline the Unfair Relationships Test, introduced as part of the Consumer Credit Act 2006.

A

The test enables borrowers to challenge a credit agreement in court, on the basis the nature of the relationship between borrower and lender is unfair.

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10
Q

How did the Consumer Credit Act 2006 affect the £25,000 upper limit on the size of loans regulated by the Act?

A

It was removed: all new credit agreements entered into by individuals are regulated.

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11
Q

What did CCA provisions introduce wrt to Consumer Credit Act 2006?

A

An exemption for high net-worth borrowers, with the definition of a high-net-worth individual detailed in the Act.

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12
Q

What change did the EU Credit Direct bring relating to cost of credit?

A

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.

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13
Q

What change did the EU Credit Direct bring relating to borrower’s creditworthiness?

A

Creditors must assess a borrower’s creditworthiness before granting credit or significantly increasing the amount of credit.

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14
Q

What change did the EU Credit Direct bring relating to ‘Adequate explanations’?

A

‘Adequate explanations’ must be provided in respect of a proposed credit agrement, to enable the borrower to assess whether the agreement meets their needs.

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15
Q

What change did the EU Credit Direct bring relating to the providing of information?

A

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.

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16
Q

What change did the EU Credit Direct bring relating to withdrawing from a credit agreement?

A

The borrower has the right to withdraw from a credit agreement within a period of 14 days from the conclusion of the agreement, or from the point the borrower receives the agreement, if this is later.

17
Q

What change did the EU Credit Direct bring relating to interest rate changes?

A

The borrower must be notified, in writing, of changes to the interest rate under the agreement, before the change takes effect.

18
Q

What change did the EU Credit Direct bring relating to seeking redress?

A

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 gods or services.

This applies in cases where the CCAs would not normally provide for such redress, and where the value of gods or services is more than £30,000 and the credit does not exceed £60,260.

19
Q

What change did the EU Credit Direct bring relating to open-ended agreements?

A

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.

20
Q

What change did the EU Credit Direct bring relating to third parties?

A

The borrower must be informed if the debt is to be sold to a third party.

21
Q

What change did the EU Credit Direct bring relating to credit intermediaries?

A

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 upfront.

22
Q

What change did the EU Credit Direct bring relating to application for credit?

A

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.

23
Q

Define Representative APR.

A

An APR that applies to 51% or more of successful applicants for the credit product.

24
Q

Define Credit Intermediary.

A

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.

25
Q

What is the cap introduced by the FCA on high-cost, short-term credit from 2 Jan 2015?

A

Interest and fees charged must not exceed 0.8% per day of the amount borrowed, default fees cannot exceed £15, and borrowers must never be required to repay more than 100% of the amount borrowed by way of fees and charges.

26
Q

Outline CONC I: Application and purpose and guidance on financial difficulties.

A

Explains the purpose of CONC as a specialist sourcebook for credit-related regulated activities, and reminds firms that the eleven Principles for Businesses apply. There is also guidance on the FCA’s indicators that a customer is in financial difficulty.

27
Q

Outline CONC 2: Conduct of business standards - general

A

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 customer 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.
28
Q

Outline CONC 3: Financial promotions and communications with customers

A

This section details what is considered to be a ‘communication’ with a customer in relation to a credit agreement, and advises that communications should be fair and not misleading. Providers must ensure they use plain and understandable language, specify who is making the offer of credit and only make credit available based on the consumer’s financial circumstances.

CONC also introduces new rules relating to risk warnings for high-cost, short-term credit, such as that offered by payday lenders. Any such lending must carry the message: ‘Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk’

29
Q

Outline CONC 4: Pre-contractual requirements.

A

Deals with the content of quotations for credit and the relevant ‘health warnings’ that must be included. This is particularly significant when the customer’s home is to be used as security. In such circumstances the lender must include the statement: ‘Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it’

CONC 4 also details the information a lender must provide about interest rates, charges and costs should the borrower be unable to pay.

30
Q

Outline CONC 5: Responsible lending.

A

Details what a provider must do before making credit available in order to ensure that the customer can afford to maintain payments in respect of their borrowing.

Creditworthiness must be confirmed based on information obtained from the prospective borrower and from a credit reference agency.

31
Q

Outline CONC 5A: Cost cap for high-cost, short-term credit

A

Details the maximum charges that can be applied for high-cost, short-term credit (such as that provided by payday lenders). Broadly speaking, the payment of any charge, when combined with other charges applied under the terms of the agreement, cannot exceed an amount more than that borrowed.

32
Q

Outline CONC 6: Post-contractual requirements.

A

Covers the checks a lender must undertake if they significantly increase the lending to a customer under a regulated agreement, eg increasing an overdraft or the credit limit on a credit card. Creditworthiness must be assessed if there is a significant increase in lending.

This section also details the action a lender must take if a customer exceds their overdraft limit, which is to contact the customer in writing without delay.

33
Q

Outline CONC 7: Arrears, default and recovery (including repossessions).

A

CONC 7 states that providers must have appropriate policies and procedures for dealing with customers whose accounts fall into arrears, and must treat such customers fairly and reasonably. This includes being aware of customers who are considered vulnerable, for example, customers with mental health difficulties.

Another aspect of this regulation is that it covers debt collection and debt administration activities, and the organisations that undertake such work. This area of consumer credit was previously unregulated.

34
Q

Outline CONC 8: Debt advice.

A

Debt advice can be undertaken by third-party debt counsellors and other organisations that provide information. Failure to pay proper regard to the different debt-solution options available to consumers, or to the differences in enforcement actions and procedures available, is likely to contravene the Principles for Business.

35
Q

Outline CONC 10: Prudential rules for debt management firms

A

Details the rules for debt management firms (those that manage repayments to creditors on behalf of an individual) and small, not-for-profit debt advice bodies to ensure that the relevant financial and management resources are in place.

36
Q

Outline CONC 11: Cancellation

A

Covers the cancellation rights of peer-to-peer lenders and those providers that make services available over the internet.

37
Q

Outline CONC 12-15 and Appendix I

A

Deal with some of the less common areas of consumer credit. Appendix 1 contains the rules relating to the total charge for credit, what it applies to and how it is cancelled.

38
Q

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

A

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