Consumer Credit: Protection The Parties - Key Issues In Consumer Credit

The provision of credit and the supply of goods on hire

or purchase to individuals (including sole traders and partnerships

of three or fewer people) in the UK is regulated by the Consumer

Credit Act 1974. The ambit of the Act is wide ranging, encompassing

not only agreements for cash loans but every form of agreement

involving credit (including hire agreements). The scope of the Act

has recently been extended by the removal of the financial ceiling

of £25,000, with the effect that all agreements by which a

creditor provides a debtor with credit of any amount, are now

regulated, unless specifically exempted. Recent changes have also

introduced more comprehensive rights for debtors whilst imposing

extra burdens on creditors.

In light of the greater protection now afforded to debtors as

well as the current difficult economic climate, it is becoming

increasingly important for creditors to ensure that regulated

agreements are correctly identified as such and drafted in

accordance with the mandatory provisions of the legislation;

otherwise they risk being unenforceable by the creditor. This

article examines some of the key issues to consider when drafting

consumer credit agreements; issues that may arise during the term

of a consumer credit agreement; the most important recent changes;

and the consequences of noncompliance with the legislation.

Drafting The Agreement

The form and content of regulated consumer credit agreements are

prescribed by statutory instrument. In particular, all regulated

consumer credit agreements and consumer hire agreements must

contain prescribed financial and other information, which must be

set out in a particular order. Failure to comply can result in an

agreement being unenforceable against a debtor.

The specific form and prescribed contents vary depending upon

the category into which the agreement falls and it is therefore

essential to establish from the outset precisely what agreement is

being drafted. The following questions need to be answered before

any consumer credit agreement is drafted:

does the agreement relate to running account or fixed sum

credit?

will the credit provided be free to use as the debtor

chooses?

will the credit provided be used to finance the supply of

particular goods or services?

where and how will the agreement be executed?

Cancellable Agreements

A cancellable agreement is an agreement which is cancellable by

the debtor, or hirer, within a stipulated period. Broadly speaking,

a regulated credit agreement is cancellable under the 1974 Act

where the agreement is entered into following face to face oral

representations between the debtor and creditor, credit broker or

supplier and...