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into, while unlicensed, are normally thereby rendered unenforceable. Section 40(1) of the Act provides that:

"a regulated agreement other than a non-commercial agreement, if made when the creditor or owner was unlicensed, is enforceable against the debtor or hirer only where the Director General has made an order under this section which applies to this agreement".

In other words, it can be enforced only if the unlicensed trader applies for a validating order, and receives it. So, if an unlicensed trader commences an action against a debtor without having obtained a validating order, then the action will be misconceived, he/she will have no cause of action, and the court will refuse to hear the dispute. Such proceedings cannot afterwards be revived if the trader subsequently gets a validating order (Eshelby v. Federated European Bank Ltd (1932)).

Seeking Business

Part IV of the Consumer Credit Act controls the seeking of business by persons carrying on consumer credit or hire business, in respect of advertising, canvassing and providing quotations.

(a)Canvassing

Canvassing for debtor–creditor-supplier agreements and for consumer hire agreements is permitted only if specifically authorised in the trader's licence (Section 23(2)).

Canvassing for debtor–creditor agreements is effectively forbidden, as it is for most other ancillary credit business such as credit brokerage, debt adjusting or counselling. Contravention is a criminal offence. The only form of canvassing that is readily permitted is for debt collecting or credit reference business.

For a canvassing offence to be committed:

The canvasser must visit an individual and make oral representations (telephone calls or mail shots are excluded).

The visit must be for the specific purpose of soliciting business.

Soliciting of business must actually occur.

The visit must not be in response to a prior request from the prospective client (in the case of debtor–creditor agreements, a request in writing and signed by the prospective client).

To constitute an offence, an unauthorised visit has to be to an individual's house. Visits to business or trade premises for the purpose of canvassing are therefore permitted.

(b)Circulars to Minors

The Betting and Loans (Infants) Act 1892 prohibited the sending of circulars to minors. Section 50 of the Act replaces these provisions. It is an offence to send documents in the prohibited categories to minors. Such documents are those which invite a minor to take up credit facilities, to hire goods or to seek information or advice as to obtaining credit or hire. However, for an offence to be committed, the sending of documents must be with intent to secure financial gain, and the sender must be aware or have reasonable cause to suspect that the recipient was a minor.

(c)Unsolicited Credit Tokens

Section 51 prohibits the giving of unsolicited credit tokens. You will remember that a credit token is normally what is commonly called a "credit card", whether it is issued by

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one of the well known credit card companies or by a shop or other organisation in respect only of its own goods, or a bank card or cheque card.

It is an offence to issue a credit token unless it has been requested in writing by the recipient. The reason for the ban on unsolicited credit tokens is to control financial irresponsibility.

(d)Advertising

Advertising for consumer credit or hire business is controlled by Sections 43 to 47 of the Act. Firstly, the advertiser must be engaged in consumer credit or consumer hire business, or in a business in the course of which credit or hire is provided; secondly, he/she must provide certain ancillary credit business, such as credit brokerage. Other forms of ancillary credit business are not caught by the advertising provisions of the Act.

An advertisement must indicate that the advertiser is willing to provide credit or to hire goods. That "indication" must be positive and explicit (Jenkins v. Lombard North Central plc (1984)).

Advertisements making it clear that credit is offered only in excess of £25,000, or that the debtor will not have to provide security, other than on land, are not covered.

Advertisements covered by the Act must:

Comply with Advertisement Regulations made by virtue of Section 44

Offer to supply goods or services on credit, in which case they must be offered for sale etc. at the price named in the advertisement

Not be false or misleading.

An offence is committed if these requirements are breached. The actual requirements of the Advertising Regulations are lengthy and complex, and are outside the scope of this course.

(e)Quotations

If individuals make requests for information in appropriate circumstances, the Act imposes a duty on relevant businesses to supply a written quotation. The businesses affected are those engaged in consumer credit, consumer hire, the lending of money to individuals on the security of land, and credit brokers.

A written quotation must be given by such organisations if the prospective customer asks for written information about a specific transaction of a relevant type, and such request is addressed to the prospective creditor, credit broker or owner, or is made at those organisations' premises (or by telephone in respect of a specific advertisement).

The quotation supplied is required to contain all relevant information concerning the credit offered, and especially it must state the Annual Percentage Rate (APR) for the credit. Other information includes:

The extent to which credit charges may vary

Whether security is required

Details of the cash price

Any deposit or advance payment

The total sum payable

Repayment details.

Quotations for hire agreements are required to be similar.

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Antecedent Negotiations

Section 56(1) of the Act defines "antecedent negotiations" as any negotiations with the debtor or hirer conducted by the creditor or owner in relation to any regulated agreement, or conducted by a credit broker in relation to goods sold, or proposed to be sold, by the credit broker to the creditor before becoming the subject of a debtor–creditor-supplier agreement, or conducted by the supplier in relation to a transaction financed or proposed to be financed by a debtor–creditor-supplier agreement.

In other words, anybody (other than the debtor) who is a party to, or directly has a business interest in, a consumer credit agreement and who negotiates with the debtor prior to entering into a consumer credit agreement and with the intention that the debtor shall enter into such agreement, is carrying out antecedent negotiations.

Antecedent negotiations commence when the negotiator and the debtor (or hirer) first enter into communication with each other, including by advertisement.

Once antecedent negotiations have started, or been shown to exist, the negotiator is deemed to be the agent of the creditor, even if, in fact, he/she is not so. As a result, the creditor becomes liable for any misrepresentations, or any contractual undertakings made by the negotiator. This liability of the creditor cannot be excluded.

C. THE CONSUMER CREDIT AGREEMENT

Regulations for Documents

Section 60(1) of the Act provides that the Secretary of State shall make regulations as to the form and content of documents embodying regulated agreements. This is to ensure that the debtor or hirer is aware of his rights and the remedies available to him, before he enters into the agreement. The agreement must contain the following information for the debtor or hirer:

"(a) The rights and duties conferred or imposed on him by the agreement

(b)The amount and rate of the total charge for credit (in the case of a consumer credit agreement)

(c)The protection and remedies available to him under the Act

(d)Any other matters which, in the opinion of the Secretary of State, it is desirable for him to know about in connection with the agreement."

The regulations which expand on the statutory requirements listed in Section 60(1) provide that the following minimum information must be given to the debtor or hirer:

(a)Any initial payment required

(b)The goods to be supplied and their cash price

(c)In the case of a fixed sum credit agreement, the amount of credit

(d)In the case of a running-account credit, the credit limit (if this can vary, a statement as to how it can vary must also be given)

(e)A statement of the total charge for credit

(f)A statement of the total sum payable under the agreement, together with repayment details (e.g. how much per month)

(g)A statement of the Annual Percentage Rate (APR) for credit

(h)Details of any security provided by the debtor

(i)Any charges payable on default by the debtor.

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To expand on these requirements where they are not obvious:

The initial payment is variously described as a deposit or a down payment. In hire purchase agreements especially, it is invariable that a percentage of the cash price of the goods has to be paid at the outset. This is typically between 20% and 33 13 %.

The debtor has to be given all three constituent elements of the price to be paid – the cash price of the goods, the total amount of credit, and the total payable.

The total charge for credit is most important – the reason being that the amount of the interest or other charges payable is excluded for the purposes of ascertaining whether the transaction is a regulated agreement. You will remember that the limit for a credit agreement to come under the terms of the Act is £25,000. For example, if the cash price of goods is £23,000 and the charge for credit is £3,000, the total repayable is £26,000. However, this would still be a regulated consumer credit agreement, as you must exclude the cost of the credit. It is thus below the limit, notwithstanding that the total amount payable by the debtor is more than £25,000.

The APR is required so that the debtor can equate the total charge for credit, which will often be the aggregate of several years, to an annual rate. APR is not always an easy calculation to make, so the creditor does not commit an offence if he/she states the APR within 1% of the actual rate.

Requirements for Completion

Section 61 of the Act provides that a regulated agreement is not properly executed unless the document embodying the agreement is signed by the debtor or hirer and also by, or on behalf of, the creditor or, if relevant, the owner. Furthermore, it must contain all the terms of the agreement, other than implied terms, and all the details and information prescribed in the regulations. All such terms and details must be readily legible.

Sections 62 and 63 provide for copies of the agreement to be supplied or sent to the debtor or hirer. The rules vary depending on the place of signature and the manner in which the agreement is to be executed. In all these cases the same applies for debtors or hirers. For simplicity, therefore, we refer to the debtor only.

(a)If the unexecuted agreement is presented personally to the debtor for her signature, and at the time when she signs it the creditor has already signed, then a copy of the agreement must there and then be given to the debtor. You will appreciate that in such an event the agreement becomes valid and binding when the debtor signs. In this event no further copies of the agreement need to be given to the debtor.

(b)If the unexecuted agreement, already signed by the creditor, is sent to the debtor for signature, a further copy must be enclosed at the same time. The debtor then signs one (thus making the agreement executed) and returns one copy to the creditor.

(c)If the unexecuted agreement which has not been signed by the creditor is presented personally to the debtor, for her signature, a further copy must be left with her. Then, a copy of the executed agreement (i.e. after signature by the creditor) must be given or sent to the debtor within seven days.

(d)If the unexecuted agreement is sent to the debtor before signature by the creditor, likewise a further copy must be enclosed at the same time. A copy of the signed agreement must then be sent to her within seven days of its having been signed by the creditor.

In all cases, except where (a) applies, if the agreement is a cancellable one (see below), the copy of the executed agreement must be sent by post and not delivered to the debtor personally.

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If the requirements of the Act are not complied with, the agreement can be enforced only by order of the court.

D. WITHDRAWAL AND CANCELLATION

Withdrawal

At common law, as you will remember, either party can always withdraw from an offer at any time before it has been accepted. A consumer credit agreement is no different, but frequently a prospective debtor who changes his mind will have no idea as to whom he should notify of this, or indeed that he has a right to do so. So Section 57 of the Act extends the common law in respect of prospective regulated agreements or any linked agreements by providing:

(a)That any notice given by either party to the other, whether written or oral, however expressed, that indicates an intention to withdraw, operates as a withdrawal – this ensures that the creditor (usually!) cannot evade the Act by insisting on any special form of notice.

(b)That each of the following people is deemed to be the agent of the creditor or owner for the purpose of receiving a notice of withdrawal:

A credit broker or supplier who is the negotiator in any antecedent negotiations

Any person who in the course of a business acts on behalf of the debtor in any negotiations for the agreement.

You will remember from the previous study units on agency that notice given to an agent serves as notice to the principal. Hence the debtor can validly give notice of withdrawal to any person with whom he/she negotiated or consulted with regard to the proposed agreement.

Cancellation

Following a similar provision in the Hire Purchase Act 1965, the Consumer Credit Act 1974 allows for a "cooling off" period in certain regulated agreements. The object is to allow people who may have been pressurised by a doorstep salesman into signing a relevant agreement, time to think again and cancel the agreement.

Section 67 of the Act provides that a regulated agreement may be cancelled by the debtor if any of the antecedent negotiations included false oral representations made in the presence of the debtor by any person acting as, or on behalf of, the negotiator.

Moorgate Property Services Ltd v. Kabir (1995)

A credit agreement was signed on the borrower's premises without the lending company giving the borrower notice of his right to cancel the agreement. The issue was whether oral representations had been made to the borrower for the purpose of Section 67, Consumer Credit Act 1974.

HELD: Such representations had been made for the purpose of the Act.

The principal exception is that this provision does not apply if the debtor signs the agreement actually at the business premises of the creditor or owner, or any party to a linked transaction, or the negotiator in any antecedent negotiations. (A linked transaction might be, for example, for insurance or maintenance of the article covered by the agreement.)

So in effect the agreement can be cancelled only if the antecedent negotiations were carried out away from the business premises of the creditor or his/her agents. Usually, of course, such objectionable negotiations would take place at the house of the prospective debtor.

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Section 64 provides that in the case of all cancellable agreements, notice must be given to the debtor of the right to cancel the agreement, and how and when this right is exercisable. That is:

The information notice must be included in every copy of the agreement given to the debtor under Sections 62 and 63.

If no copy is required to be given (either because the unexecuted agreement has been given to the debtor for his/her signature, or because it was sent to him/her for signature) then the information notice must be sent by post to the debtor within seven days following the making of the agreement.

The cooling off period is prescribed by Section 68 as being the period in which notice of cancellation may be given by the debtor. The period commences with the time of signature of the agreement, and ends at the end of the fifth day following the day on which the debtor receives the second copy of the agreement or, if no copy is required, then after he/she receives the information notice by post.

If therefore the debtor signs the agreement on Day One, and he receives either the second copy or the information notice on Day Five, then he has until midnight on Day Ten in which to serve notice of cancellation on the creditor, supplier or agent of either.

The effect of notice of cancellation is to cancel not only the agreement but also any linked transaction (e.g. for insurance or maintenance of the article covered by the agreement). The creditor is then required to refund any deposit or other moneys paid under the agreement. By the same token, obviously the debtor must return the article if he/she has possession of it (Section 72). The debtor is not under any duty to deliver goods in respect of a cancelled agreement to the creditor or supplier at any place other than his/her own premises. First, the creditor or supplier must request their return in writing; then collect them from the debtor's premises.

If goods were given in part-exchange for goods supplied under a cancelled agreement, S.73 provides for what must be done. The person who agreed to take goods in part-exchange for others is deemed by the section to be the negotiator. He/she is then bound to return the part-exchanged goods to the debtor in substantially the same condition as they were delivered. If they are not so re-delivered within a period of ten days from the date of cancellation, the negotiator is bound to pay a sum equal to the part-exchange allowance. This takes care of the situation where the negotiator has either resold the part-exchanged goods, or otherwise rendered them unfit to be returned in substantially the same condition. But the negotiator does still have a lien on part-exchanged goods for the amount of any sums due from the debtor (e.g. the deposit).

E.RIGHTS DURING THE CURRENCY OF THE AGREEMENT

We have now dealt with matters that arise up to the time when a regulated consumer credit agreement validly comes into force. But the Act also controls the execution of the agreement to ensure that suppliers of credit do not abuse their position.

Variation of the Agreement

As with any contract, the parties are free to vary or to rescind a regulated consumer credit agreement by agreement between them. The parties are quite free to rescind the original agreement and substitute for it a new agreement, provided that the new agreement complies in all respects with the provisions of the Act, as if it were a totally fresh contract. Likewise, the parties can vary the agreement by mutual consent. Whether an agreement is rescinded and a new one substituted, or the original merely varied, depends on the intention of the

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parties. It is perhaps a fine distinction, but in view of the provisions of Section 82 (see below) it is likely that a variation will not be construed as a rescission and substitution unless that is plainly the intention of the parties.

But if under a power contained in the agreement itself the creditor or owner varies the agreement, Section 82 regulates the matter. Firstly, no such variation can take effect until notice of it has been given to the debtor or hirer in the prescribed manner. The procedure is contained in the Consumer Credit (Notice of Variation of Agreements) Regulations 1977, and the principal provision is that a notice giving details of the variation must be served on the debtor (or hirer) at least seven clear days before the variation takes effect. There are two main exceptions to this:

Under Regulation 3, banks and credit card companies who charge interest on a daily basis and who have a provision in the agreement to vary the rate of interest, do not need to give individual notice of change. Instead, they may publish the change in three daily national newspapers.

Under Regulation 4, owners of goods under regulated hire agreements who wish to account for any changes in VAT are permitted to serve a notice on hirers having immediate effect. This applies only if the increase or decrease in charges reflects no more than the change in VAT.

Secondly, Sub-section (2) of Section 82 provides that where a "modifying agreement" supplements or varies an existing agreement, it has the effect of revoking the earlier agreement, and substituting a new agreement reproducing the combined effect of the two agreements. Thus obligations of either party outstanding in respect of the earlier agreement are treated as outstanding in respect of the modified agreement. The form of the modified agreement must comply with all the requirements we have already discussed as applying to a new regulated agreement; that is, pre-contract disclosure, signatures, copies, cancellation rights, etc.

Appropriation of Payments

If a debtor or a hirer has two or more regulated agreements with the same creditor or owner, and he/she makes a payment which is not sufficient to discharge the amount due under all the agreements, then Section 81 provides as follows:

(a)He/she is entitled to appropriate the payment he/she has made to satisfy wholly or partially the sums due on any of the agreements.

(b)If he/she does not make any appropriation, then the creditor or hirer must apply the sum paid to each of the agreements in proportion to the sums owing on each of them.

For example, say a debtor has two agreements with a creditor, Agreement A with £100 outstanding and Agreement B with £200 outstanding. Without any appropriation, he makes a payment to the creditor of £60. The creditor must apportion this as to £20 to Agreement A and £40 to Agreement B.

However, this provision applies only if the agreements in question are:

Hire purchase or conditional sale

Consumer hire – or agreements in relation to which any security has been provided.

Early Settlement

Early settlement of a consumer credit or hire agreement may arise for two reasons. First, the agreement may provide that in the event of a breach of contract by the debtor, the full amount outstanding becomes immediately payable. Second, if the debtor wishes to pay off the outstanding amount before the contract has run its full course, he/she may do so.

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Prior to the Consumer Credit Act, there was no statutory control, and only limited common law control over the creditor's actions. If the debtor was in breach of contract, the only restriction on the creditor's right to demand full payment, including interest over the whole period, was if it was deemed to be a penalty, rather than liquidated damages. Excessive amounts contracted to be paid in the event of termination by breach have always been void as penalties (Bridge v. Campbell Discount (1962)). However, in Anglo-Auto Finance Ltd v. James (1963) it was held that an accelerated payment resulting from a breach by the debtor was void as a penalty, unless some discount was given to reflect the fact that the creditor was receiving earlier payment than was otherwise contractually due. In the event that the debtor desired to pay off earlier than necessary, he normally had to pay the full amount outstanding, without any allowance for the fact that the interest charge should thereby be reduced.

The Consumer Credit Act caters for these two injustices. Section 94 gives a debtor under a regulated agreement a right to pay off the outstanding amount at any time during the currency of the agreement, by notice to the creditor. Section 95 authorises regulations to be made to provide for a rebate to be given if the indebtedness is discharged early for any reason. The Rebate on Early Settlement Regulations duly provide for such rebate, regardless of the reason for the early settlement.

Default by the Debtor

The Act controls the remedies a creditor or owner may exercise in the event of default by the debtor, that is, the breach by him/her of a regulated agreement. Of course, in the great majority of cases, in practice the default will consist of failure to pay, but the procedures to be outlined apply to any breach of contract by the debtor.

Before the creditor can take any action to:

Terminate the agreement

Demand earlier payment of any sum

Recover possession of goods or land

Treat any right conferred on the debtor (or hirer) by the agreement as terminated, restricted or deferred, or

Enforce any security

under Section 87 he/she must first serve on the debtor a "default notice (see Woodchester Lease Management Services Ltd v. Swain & Co (1999)". The contents of the statutory default notice are laid down in Section 88. The notice must state:

(a)The nature of the alleged breach

(b)If the breach can be remedied, what action is required by the debtor, and the date by which that action must be taken

(c)If the breach cannot be remedied, the sum required as compensation, and the date by which it must be paid (the dates to be given must not be less than seven days after service of the notice)

(d)Information as to the consequences if the debtor fails to comply with the notice.

So, before any action can be taken in respect of a breach of contract, the debtor must have received specific notice of the breach and a warning of the consequences. What happens if he/she fails to heed the notice depends on the terms of the contract, but is further controlled in respect of certain types of agreement and remedy, as we shall see.

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Recovery of Goods

In the case of regulated hire purchase or conditional sale agreements, where the debtor has already paid one-third or more of the total price and remains in possession of the goods, the creditor can retake those goods only by obtaining a court order (Section 90).

The creditor or owner is allowed to enter any premises for the purposes of re-taking possession of goods under such a regulated agreement only if he/she has a court order (Section 91).

Any entry on to premises in contravention of this is actionable as a breach of statutory duty.

Security

A debtor may be required to provide security as a condition of entering into a regulated agreement. Such security is defined as any "mortgage, charge, pledge, bond, debenture, indemnity, guarantee, note or other right provided by the debtor or hirer or at his request".

Any security given must by virtue of Section 105 be made in the prescribed form, and contain all relevant information and particulars. What the Act sets out to do is to ensure that any surety – that is, a person giving the security – is aware of what is involved, and is protected in a similar manner as is the debtor. So, all documents must contain all the terms of the security, and the surety must receive copies of all such.

If there is any breach of the regulations, Section 106 makes any security given ineffective.

Extortionate Credit Bargains

Sections 137 to 140 of the Act give certain protection to debtors against extortionate credit bargains. The court has power to re-open any credit agreement if the bargain is extortionate, in order to do justice between the parties. This power is not confined to regulated consumer credit agreements, but extends to all agreements between a debtor and a creditor where credit of any amount is given.

By virtue of Section 138, a credit bargain is extortionate if it requires the debtor, or any relative of his/hers, to make payments (either unconditionally, or in the event of any contingency) which are grossly exorbitant or if the bargain otherwise contravenes ordinary principles of fair dealing (see Barcabe v. Edwards (1983) – APR of 319%).

The factors which the court is required to take into consideration in determining whether the agreement is extortionate are the following:

Interest rates prevailing at the time the agreement was made

Age, experience, business capacity and state of health of the debtor

The degree to which at the time of making the agreement, the debtor was under financial pressure, and the nature of the pressure

The degree of risk accepted by the creditor, having regard to the value of any security

The relationship between creditor and debtor

Any other relevant circumstances.

The provisions extend also to any linked transactions.

In the event that the court does find a bargain to be extortionate it is empowered to re-open the transaction and make any order it sees fit to alleviate the situation.

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F.OBLIGATIONS OF THE CREDITOR IN RELATION TO THE QUALITY (ETC.) OF THE GOODS

We have dealt with the making of an agreement, the agreement itself, and rights and obligations flowing from the agreement. Now we must turn to the goods themselves, and the rights of the debtor against various parties in the event of the goods being defective or not in accordance with the contract.

Defective Goods

The Supply of Goods (Implied Terms) Act 1973 implied into all hire purchase agreements the terms as to merchantability and fitness for purpose (now "satisfactory quality" under the Sale and Supply of Goods Act 1994), and correspondence with description and sample, that are contained in the Sale of Goods Act 1979. The Unfair Contract Terms Act 1977 ensures that these implied conditions or warranties, and those as to title, cannot be excluded or restricted by any contract term.

So in other words, in relation to goods covered by the Consumer Credit Act, if title passes at the time of the agreement, the provisions of the Sale of Goods Act apply and cannot be restricted. If title does not pass until some future time in a hire purchase agreement, then the same provisions apply from the time when the hirer takes possession. Of course if the agreement is a pure leasing one, where title at no time is intended to pass to the hirer, then the question of terms implied by the Sale of Goods Act cannot apply. However the Supply of Goods and Services Act 1982 serves to imply similar provisions into all contracts for the hire of goods.

Rights of Action by the Debtor – Section 75

These rights against a supplier are of value only if the supplier is solvent and in existence at the time when any claim is made against him/her. The Act endeavours to provide for this by means of Section 75, but, as we shall see, only in some situations. Section 75(1) states as follows:

"If the debtor under a debtor–creditor–supplier agreement falling within Section 12(b) or (c) has, in relation to a transaction financed by the agreement, any claim against the supplier in respect of a misrepresentation or breach of contract, he shall have a like claim against the creditor, who, with the supplier, shall accordingly be jointly and severally liable to the debtor."

The object therefore is to give an aggrieved debtor the option of pursuing a claim in respect of any misrepresentation, faulty goods, or other breach of contract against either the supplier or the creditor or both. Obviously this is potentially a very valuable right if the supplier is insolvent or has "disappeared".

However, the trouble is that the section applies only to transactions falling within Sections 12(b) or (c). The commonest forms such transactions take are connected lending agreements where the article or service is provided by the supplier and is financed by a loan from the creditor to the debtor – or, where the article or service is paid for by means of a credit card (e.g. Mastercard, Barclaycard, etc.). These two sub-sections do not apply to hire purchase, conditional sale or credit sale agreements. These transactions are debtor– creditor–supplier agreements falling within Section 12(a) (which specifically does not apply).

As will be plain, Section 75 places a very heavy burden on the creditor – usually a finance company. It has no direct knowledge of the negotiations, nor probably any expertise in the particular goods or services in question. Nevertheless it is made responsible (with the supplier) for defects etc. If, therefore, a finance company wishes to take part in this type of business, it behoves it to be very careful in checking the suppliers it uses. As a result, many

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