3â Consumer Credit Act 1974

The CCA 1974 was a radical piece of legislation that amended the Moneylenders Acts 1900–1927 and the Hire-Purchase Act 1965.12 The CCA 1974 sought to protect borrowers in five areas: consumers were to be given a cooling-off period; creditors would not be able to demand early payment; if the borrower had paid one-third of the total price of the goods under a hire-purchase agreement, then the creditor could not take the goods back without first obtaining a court order; if a credit agreement was extortionate, then the borrower could apply to the court for a review of the agreement; and certain written information had to be provided to the borrower.13 In order to afford this level of protection, the CCA 1974 made provision for the creation of specific regulations covering such areas as the form and content of consumer credit agreements, the advertising of credit, the calculation of the annual percentage rate of interest (APR), credit licensing provisions, extortionate credit bargains and the procedures to be adopted in the event of default, termination or early settlement. Despite its laudable aims, the CCA 1974 failed to fulfil its objective of increasing the level of consumer protection and it was consequently amended by the CCA 2006. The 2006 Act was implemented on 1 October 2008 and modified and updated its 1974 predecessor. The Department for Business Innovation and Skills (DBIS) boldly asserted that the CCA 2006 would ‘establish a fairer, more transparent and competitive credit market, updating consumer credit legislation that had been in place since the 1970s, making it more relevant to today’s consumers’.14 At the heart of the legislation was the aim to increase the level of protection afforded to consumers. This was to be achieved by strengthening the credit licensing system, improving the ability of consumers to challenge unfair lending, and broadening the enforcement powers of the OFT. Furthermore, consumers would benefit from receiving clearer preand post-contractual information about their credit agreements. Patient commented that the CCA 2006 would:

establish … further protection for consumer credit customers by providing, inter alia, further stringent informational requirements, the ability to have the agreement set aside or altered in the event of an unfair credit relationship, and the extension of the Consumer Credit Act to all credit agreements regardless of the size of the loan.15

12 See F. Philpott, ‘E-commerce and consumer credit’ (2001) 3(4) Journal of International Financial Markets 131.

13 See Department of Trade and Industry White Paper, Fair, Clear and Competitive: the Consumer Credit Market in the 21st Century (London, 2003) 114.

14 See Department for Business Innovation and Skills, ‘Consumer Credit Act 2006’ (n/d), available at www.berr.gov.uk.

15 Brown, above n. 3, at 317.

(1) the OFT;17

(2) credit agreements, hire agreements and linked transactions;18

(3) licensing of credit and hire businesses;19

(4) seeking business;20

(5) entry into credit or hire agreements;21

(6) matters arising during currency of credit or hire agreements;22

(7) default and termination;23

(8) security;24

(9) judicial control;25

(10) ancillary credit businesses;26 (11)â enforcement of the Act;27 and (12) supplemental issues.28

(i)â Creditor, debtor and credit

One of the most important definitions in the consumer credit legislative framework is that of a ‘creditor’. A creditor is defined as ‘the person providing credit under a consumer credit agreement or the person to whom his rights and duties under the agreement have passed by assignment or operation of law, and in relation to a prospective consumer credit agreement, includes the prospective creditor’.29 Dobson and Stokes noted that ‘the creditor means the person who provides the credit, that is, in the case of a hire-purchase agreement, the owner, in the case of a direct loan, the lender and in the case of a credit sale agreement, the seller’.30 The creditor does not need to be an individual, so it can include, for example, an artificial person.31 Conversely, a debtor is defined as ‘the individual receiving credit under a consumer credit agreement or the person to whom his rights and duties under the agreement have passed by assignment or operation

16Directive 2008/48/EC on credit agreements for consumers of the European Parliament and of the Council, 23 April 2008, [2008] OJ L133/66. A copy of the Directive is available at http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:133:0066:0092:EN:PDF.

30P. Dobson and R. Stokes, Commercial Law (Sweet and Maxwell, Gosport, 2008) 289.

31Macleod, above n. 3, at 200.

526 The Consumer Credit Act 1974

of law and in relation to a prospective consumer credit agreement includes the prospective debtor’.32 However, the definition of an individual was broadened by the CCA 2006 and an individual now includes ‘a partnership consisting of two or three persons not all of whom are bodies corporate; and an unincorporated body of persons which does not consist entirely of bodies corporate and is not a partnership’.33

An equally important term to define is ‘credit’, which includes ‘cash,34 a loan and any other form of financial accommodation’.35 There is no definition of ‘financial accommodation’ and it has been said that ‘the definition of “credit” in the CCA 1974 is not as precise and unambiguous as one might have wished’.36

(ii)â Regulated agreements

In order to determine whether a transaction falls within the scope of the CCA 1974 it is important to ascertain if it is a regulated agreement.37 A regulated agreement is defined as ‘a consumer credit agreement, or consumer hire agreement, other than an exempt agreement, and “regulated” and “unregulated” shall be construed accordingly’.38 The CCA 1974 also refers to a ‘consumer credit agreement’39 and a ‘consumer hire agreement’.40 A consumer credit agreement is defined as an agreement between an individual who is referred to as the debtor and another individual, the creditor, who provides the debtor with credit.41 This definition originally had to be read in conjunction with CCA 1974, section 8(2), which limited the definition of a personal credit agreement to an agreement by which the creditor provided the debtor with credit not exceeding a given sum (£25,000 in 2008), but this financial limit was removed by CCA 2006, section Â2.42

Macleod noted that the definition of a consumer credit agreement contains four elements: there must be an agreement, for the provision of credit, between the debtor and the creditor.43 A consumer credit agreement embraces a wide range of contractual credit, including hire purchase, conditional sale, credit trading, credit cards, budget accounts, overdrafts, personal loans, mortgages and pledges.44 The CCA 1974 only controlled consumer credit agreements;

32 CCA 1974, s.189(1).â 33â Ibid., as amended by CCA 2006, s.1.

34CCA 1974, s.189(1).

35Ibid. s.9(1). For a discussion of the courts’ approach to the definition of credit see Dimond v. Lovell [2000] 2 All ER 897. See I. McLaren, ‘Dimond v Lovell: the spot rate issue’ (2000) 150(6944) New Law Journal 1066, 1068.

36D. Rosenthal, Guide to Consumer Credit Law and Practice (Butterworths, London, 2002) 6.

41Ibid. s.8. For a general discussion of the interpretation of a consumer credit agreement see TRM Copy Centres (UK) Ltd v. Lanwall Services Ltd [2009] UKHL 35.

42Dobson and Stokes, above n. 30, at 295. For an interesting (historical) discussion of the different approaches adopted by the courts to the interpretation of the financial limit, see Humberclyde Finance Ltd v. Thompson [1997] CCLR 23; London North Securities Ltd v. Meadows [2005] EWCA Civ 956; and Wilson v. Robertsons (London) Ltd [2005] 3 All ER 873.

43 Macleod, above n. 3, at 193.â 44â Ibid. 192.

528 The Consumer Credit Act 1974

Âpre-existing arrangements between himself and a person other than the debtor in the knowledge that the credit is to be used to finance a transaction between the debtor and the supplier.52

(b)â Exempt agreements

The CCA 1974 provides for a number of exemptions from its provisions.53 A consumer credit agreement is exempt from the Act if it is a short-term consumer credit agreement;54 low cost credit;55 financing for foreign trade;56 a house mortgage which is regulated by the Financial Services Authority (FSA) under the Financial Services and Markets Act (FSMA) 2000; or a loan from a responsible mortgage lender such as a local authority57 or a housing association.58 Other exemptions include certain second charge mortgages, which depend on the nature of the agreement and the identity of the lender; agreements for goods or services where the consumer has to repay the credit within twelve months in four payments or fewer; charge cards and similar agreements where the consumer has to repay the outstanding balance in full at the end of each period;59 credit union agreements where the APR does not exceed 26.9 per cent; credit agreements offered to a limited group of borrowers where the APR does not exceed a specified ‘low cost’ rate (set by reference to average base rates); and certain agreements relating to overseas finance.60 Other agreements exempt under the CCA 1974 are those contained in the Consumer Credit (Exempt Agreements) Order 1989, as amended.61 As mentioned above, the financial limit of £25,000 imposed by CCA 1974, section 8(2) was removed in 2008.62 The exemptions available under the CCA 1974 were further altered by the implementation of Consumer Credit Directive 2008/48/EC on 1 February 2011, which narrowed the range of exempt agreements63 as regards matters including the number of payments, relevant charges payable for the credit, insignificant charges, the rate of the total charge for credit and certain agreements in countries outside the United Kingdom.

Additional exemptions were provided by the CCA 2006, the Consumer Credit (Exempt Agreements) Order 200764 and the Legislative Reform (Consumer Credit) Order 2008.65 The CCA and the 2007 Order introduced two exemptions that related to lending to high net worth individuals who have a net income that exceeds £150,000 or net assets that exceed £500,000 and business lending over £25,000 where the loan is wholly or principally for business

52â Ibid. s.13.â 53â Ibid. s.189(1).â 54â Ibid. s.16(5)(a).â 55â Ibid. s.16(5)(b).

56 Ibid. s.16(5)(c).â 57â Ibid. s.16(1), (2).â 58â Ibid. s.16(6A).â 59â Ibid. s.16(5)(a).

60See ibid. s.16 and the Consumer Credit (Exempt Agreements) Order 1989, SI 1989/869.

61SI 1989/869, as amended by Consumer Credit (Exempt Agreements) Order 2007, SI 2007/1168.

62See SI 2007/1168 and CCA 1974, ss.16A and 16B.

63Department for Business Innovation and Skills, Consumer Credit Regulations: Guidance on the Regulations Implementing the Consumer Credit Directive (London, 2010) 14.

64SI 2007/1168.â 65â SI 2008/2826.