554 |
The Consumer Credit Act 1974 |
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consumer harm or where other factors such as fraud or other dishonesty war- |
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rant the use of criminal process.’322 |
15â Consumer Credit Directive
The first Consumer Credit Directive was adopted in December 1986.323 MacLeod noted that ‘since the late 1970s the EEC has been moving towards the harmonising of consumer credit laws. The first Directive on this subject was dated 1987; and in 1990 that Directive was amended to add provisions on the computation of annual percentage rate.’324 He added that ‘the Directive was modelled on the Consumer Credit Act [1974], but was short and general in character. It was a minimum Directive, in that it allowed Member States to introduce more stringent provisions to protect consumers, so that it did not prove necessary to make any alterations to the Consumer Credit Act 1974.’325 It was subsequently amended twice, but remained virtually unchanged during the following two decades.
By the start of the new millennia, the European Commission decided that the first Consumer Credit Directive was out of touch and needed considerable updating and amending to keep pace with the ever-expanded consumer credit market. After an extensive period of consultation, including consideration of amendments tabled by the European Parliament, the Consumer Credit Directive 2008/48/EC was adopted by the European Commission in May 2008.326 All EU Member States were required to fully implement the Consumer Credit Directive by June 2010. The objectives of the Consumer Credit Directive were expressed to be seeking to achieve a maximum level of harmonisation and to maintain and improve the high levels of consumer protection within the European Union.327
Article 2 of the Directive provides that its purpose is to ‘harmonise certain aspects of the laws, regulations and administrative provisions of the Member
States concerning agreements covering credit for consumers’.328 The Directive applies to all forms of consumer credit agreements but does contain several exemptions. This includes, amongst other things, mortgage agreements,329 credit agreements where the amount of credit is less than 200 euros or more than 75,000 euros,330 interest free credit agreements,331 and credit agreements where the credit is granted by an employer to its employee.332
322Ibid. 9.
323Council Directive 1987/102/EC on consumer credit, 22 December 1986.
324 Macleod, above n. 3, at 183.â 325â Ibid.
326Directive 2008/48/EC on credit agreements for consumers of the European Parliament and of the Council, 23 April 2008. A copy of the Directive is available at http://eur-lex.europa.eu/ LexUriServ/LexUriServ.do?uri=OJ:L:2008:133:0066:0092:EN:PDF.
327DBERR, Impact Assessment of Consumer Credit Directive (London, 2009) 1.
328 |
Directive 2008/48/EC, Art. 2.â 329â Ibid. Art. 2(a). |
330 |
Ibid. Art. 2(c).â 331â Ibid. Art. 2(f).â 332â Ibid. Art. 2(g). |
555 |
15â Consumer Credit Directive |
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The Directive provides some definitions of key terms such as ‘consumer’, |
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‘creditor’, ‘credit agreement’, ‘annual percentage rate’ and ‘fixed borrowing |
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rate’.333 Importantly, the Directive stipulates that any advertisement for the |
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purposes of consumer credit that refers to an interest rate or any figures illus- |
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trating the costs of the available credit to a consumer must contain ‘standard |
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information’.334 The standard information must be specified ‘in a clear, concise |
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and prominent way by means of a representative example’ and will include the |
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borrowing rate;335 the total amount of credit;336 the APR;337 if appropriate, the |
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duration of the credit agreement;338 in the case of credit in the form of deferred |
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payment for a specific good or service,339 the cash price and the amount of any |
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advance payment; and again, if applicable, the total amount payable by the con- |
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sumer and the amount of the instalments.340 The Consumer Credit Directive |
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states that before a consumer is bound by a credit agreement, the creditor |
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must ‘provide the consumer with the information needed to compare different |
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offers in order to take an informed decision on whether to conclude a credit |
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agreement’.341 Such information should include, amongst other things, the type |
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of credit;342 the identity and address of the creditor and credit intermediary;343 |
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the total amount of credit and relevant conditions;344 the length of the credit |
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agreement; in the case of credit in the form of deferred payment for a specific |
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good or service and linked credit agreements, that good or service and its cash |
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price; the borrowing rate of interest;345 the APR and the total amount repayable |
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by the debtor;346 the amount, number and frequency of payments that are to be |
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made by the debtor;347 the interest rate applicable in the case of late payments;348 |
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a warning regarding the consequences of missing payments;349 and the con- |
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sumer’s right to be supplied, on request and free of charge, with a copy of the |
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draft credit agreement.350 |
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The Consumer Credit Directive imposes a long overdue obligation on the |
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creditor to assess the creditworthiness of the consumer,351 which it is hoped will |
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lead to a reduction in such practices as predatory and irresponsible lending. |
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Article 8(1) provides that ‘Member States shall ensure that, before the conclu- |
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sion of the credit agreement, the creditor assesses the consumer’s creditworthi- |
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ness on the basis of sufficient information, where appropriate obtained from the |
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consumer and, where necessary, on the basis of a consultation of the relevant |
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database’.352 Furthermore, ‘Member States shall ensure that, if the parties agree |
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to change the total amount of credit after the conclusion of the credit agree- |
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ment, the creditor updates the financial information at his disposal concerning |
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333 |
Ibid. Art. 3.â 334â Ibid. Art. 4. |
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335 |
Ibid. Art. 4(2)(a).â |
336â Ibid. Art. 4(2)(b). |
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337 |
Ibid. Art. 4(2)(c). Member States may specify that the APR does not need to be included. |
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338 |
Ibid. Art. 4(2)(d).â |
339â Ibid. Art. 4(2)(e).â |
340â Ibid. Art. 4(2)(f). |
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341 |
Ibid. Art. 5.â 342â Ibid. Art. 5(1)(a).â 343â Ibid. Art. 5(1)(b). |
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344â Ibid. Art. 5(1)(c).â |
345â Ibid. Art. 5(1)(f).â |
346â Ibid. Art. 5(1)(g). |
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347 |
Ibid. Art. 5(1)(h).â |
348â Ibid. Art. 5(1)(l).â |
349â Ibid. Art. 5(1)(m). |
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350 |
Ibid. Art. 5(1)(r).â |
351â Ibid. Art. 8.â 352â Ibid. Art. 8(1). |
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556 The Consumer Credit Act 1974
the consumer and assesses the consumer’s creditworthiness before any significant increase in the total amount of credit’.353 The Directive further provides that ‘each Member State shall in the case of cross-border credit ensure access for creditors from other Member States to databases used in that Member State for assessing the creditworthiness of consumers. The conditions for access shall be non-discriminatory.’354 Furthermore, ‘if the credit application is rejected on the basis of consultation of a database, the creditor shall inform the consumer immediately and without charge of the result of such consultation and of the particulars of the database consulted’.355
Article 10 of the Directive prescribes the type of information to be included in credit agreements.356 This includes, for example, the type of credit agreement, contact details of the creditor, length of the agreement, total amount of credit, the borrowing rate and the APR. Of equal importance is Article 14, which concerns the ability of the debtor to withdraw from the credit agreement. The Article provides that ‘the consumer shall have a period of 14 calendar days in which to withdraw from the credit agreement without giving any reason’,357 although the fourteen days may be reduced at the explicit request of the consumer.358
Article 16 of the Directive states that ‘the consumer shall be entitled at any time to discharge fully or partially his obligations under a credit agreement. In such cases, he shall be entitled to a reduction in the total cost of the credit, such reduction consisting of the interest and the costs for the remaining duration of the contract.’359 However, ‘in the event of early repayment of credit, the creditor shall be entitled to fair and objectively justified compensation for possible costs directly linked to early repayment of credit provided that the early repayment falls within a period for which the borrowing rate is fixed’.360 Furthermore, Article 16(2) provides that ‘such compensation may not exceed 1% of the amount of credit repaid early, if the period of time between the early repayment and the agreed termination of the credit agreement exceeds one year. If the period does not exceed one year, the compensation may not exceed 0.5% of the amount of credit repaid early.’
In April 2009, DBIS published a consultation paper seeking views from interested parties to ensure that the Consumer Credit Directive was fully implemented. A broad range of issues were consulted upon, including the precontractual, contractual and post-contractual information that must be given to consumers; information to be included in advertisements; rights for consumers to repay an agreement early, in full or in part; calculation of the APR; the duty on the lender to provide adequate explanations about the credit on offer to the consumer; the obligation on the lender to check creditworthiness before offering or increasing credit; and the right for consumers to withdraw from a credit
353 |
Ibid. Art. 8(2).â |
354â Ibid. Art. 9(1).â |
355â Ibid. Art. 9(2). |
356 |
Ibid. Art. 10.â |
357â Ibid. Art. 14(1).â |
358â Ibid. Art. 14(2). |
359 |
Ibid. Art. 16(1).â 360â Ibid. Art. 16(2). |
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557 |
17â Recommended reading |
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agreement within fourteen days without giving any reason.361 While it was clear |
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that there was a great deal of overlap in respect of many of these issues with |
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some of the measures introduced by the CCA 2006, nonetheless, a number of |
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measures contained in the Consumer Credit Directive were new to consumer |
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credit law in the United Kingdom. These included, for example, the duty on the |
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lender to provide adequate explanations about the credit on offer to the con- |
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sumer; the obligation on the lender to check creditworthiness before offering |
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or increasing credit; requirements concerning credit reference databases; the |
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right for consumers to withdraw from a credit agreement within fourteen days |
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without giving any reason; requirements to inform consumers when debts are |
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sold on; and requirements for credit intermediaries to disclose fees and links to |
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creditors.362 |
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The Consumer Credit Directive was finally fully implemented in the United |
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Kingdom in February 2011 through a number of Statutory Instruments, |
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including the Consumer Credit (EU Directive) Regulations 2010,363 the |
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Consumer Credit (Total Charge for Credit) Regulations 2010,364 the Consumer |
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Credit (Disclosure of Information) Regulations 2010,365 the Consumer Credit |
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(Agreements) Regulations 2010366 and the Consumer Credit (Advertisements) |
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Regulations 2010.367 |
16â Conclusion
Since the recommendations of the Crowther Committee and the introduction of the CCA 1974, the consumer credit market continued to expand and evolve to such an extent that by 2006 the levels of protection afforded in 1974 were completely out of touch with the needs of consumers—the ineffectiveness of the extortionate credit bargain regime and the weak enforcement powers of the OFT were clear illustrations of this. The CCA 2006 consequently introduced several important amendments to the CCA 1974, including the extension of the scope of the FOS, the introduction of the fairness test and tougher enforcement powers for the OFT. These measures, when considered in conjunction with the provisions of the Consumer Credit Directive 2008/48/EC, have, to some extent at least, transformed an ineffective piece of legislation into one which has increased the levels of protection afforded to consumers.
17â Recommended reading
Bisping, C. ‘The case against s.75 of the Consumer Credit Act 1974 in credit card transactions’ (2011) 5 Journal of Business Law 457
361 DBERR, Consultation on Proposals for Implementing the Consumer Credit Directive (London, 2009).
362 |
Ibid. 4.â 363â SI 2010/1010.â 364â SI 2010/1011. |
365 |
SI 2010/1013.â 366â SI 2010/1014.â 367â SI 2010/1970. |
558 |
The Consumer Credit Act 1974 |
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Brown, S. ‘The Consumer Credit Act 2006: real additional mortgagor protection?’ (2007) Conveyancer and Property Lawyer 316
â ‘Using the law as a usury law: definitions of usury and recent developments in the regulation of unfair charges in consumer credit transactions’ (2011) 1 Journal of Business Law 91
Carter, R. ‘Statutory interpretation using legislated examples: Bennion on multiple consumer credit agreements’ (2011) 32(2) Statute Law Review 86
Department for Business Innovation and Skills Consumer Credit Regulations: Guidance on the Regulations Implementing the Consumer Credit Directive (London, 2010)
Devenney, J. and Ryder, N. ‘The cartography of the concept of “total charge for credit” under the Consumer Credit Act 1974’ (2006) Conveyancer and Property Lawyer (September/October) 475
Dobson, P. âand Stokes, R. Commercial Law (Sweet and Maxwell, Gosport, 2008) Howells, G. ‘The end of an era: implementing the Unfair Commercial Practices Directive
in the United Kingdom – punctual criminal law gives way to a general criminal/ civil law standard’ (2009) 2 Journal of Business Law 183
â‘The consumer credit litigation explosion’ (2010) Law Quarterly Review 617 Lomnicka, E. ‘The reform of consumer credit in the UK’ (2004) Journal of Business
LawÂ129
Macleod, J. ‘Credit hire in the House of Lords’ (2001) Journal of Business Law (January)Â14
âConsumer Sales Law (Routledge, Oxford, 2007)
McMurty, L. ‘Consumer Credit Act mortgages: unfair terms, time orders and judicial discretion’ (2010) 2 Journal of Business Law 107
Patient, J. ‘The Consumer Credit Act 2006’ (2006) 21(6) Journal of International Banking Law and Regulation 309
Scott, C. and Black, J. Cranston’s Consumers and the Law (Butterworths, London, 2000)