Scope of the Consumer Credit Act
The CCA regulates the relationship between consumers (ie private individuals) and lending institutions where a credit or hire agreement is provided (ie the relationship between lender and borrower). It covers credit agreements such as credit cards, personal cash loans, overdrafts and store cards, as well as hire purchase agreements such as buying a car through instalments.
The CCA only applies to 'regulated agreements', where the borrower is an individual (ie a consumer) and where a statutory exemption doesn’t apply. An example of this is the 'business purposes' exemption which applies to credit agreements exceeding £25,000 entered into by borrowers for business purposes.
The CCA gives consumers a variety of rights against lenders, such as the right to a 'cooling-off period' or to pay off their credit early, and lays down certain procedural requirements to control the lending process.
Ask a lawyer if you are unsure whether your consumer credit agreement or hire-purchase agreement is a ‘regulated agreement’ covered by the CCA.
How are borrowers protected under the CCA?
The CCA grants borrowers various rights in order to protect them when entering into agreements with lenders. The most important are the following:
Right to pre-contractual information
Borrowers are entitled to receive certain key information from their lenders before entering into a credit or hire agreement so that they know exactly what they are signing up for. This includes information on their rights and duties, protection and remedies available under the CCA, the duration of the agreement, interest rate charges, and timings of repayments.
Right to a credit file
When borrowers apply for a loan or credit card, the lender will usually check their credit history and other relevant details with the help of a credit reference agency in order to decide whether or not to grant them a loan or credit card. Should the lender's decision appear to be unfair, the borrower can ask for a copy of their credit file and appropriate action can be taken.
Right to a ‘cooling-off period'
Notice of a borrower’s cancellation rights must be included within their copy of the credit agreement which must, in any case, be sent within 7 days of signing the agreement. Borrowers are entitled to a cooling-off period (or right to cancel the agreement) of:
5 days if the agreement was signed away from the lender’s normal business premises (eg at their home or at a lender’s stand at an exhibition/event)
14 days if the agreement was made over the phone, by post or online
Right to early repayment
Borrowers can pay off loans, or part of them, early by providing notice to their lenders. This will usually mean a lesser amount of interest to be paid.
Right to notices and information
Borrowers must be informed in writing whenever:
they are in arrears
a default sum becomes payable (eg when a fee becomes due by the borrower for exceeding a credit limit on a credit card agreement)
Such notices must give borrowers at least 14 days to make their payments before lenders can take any action against them.
Courts have the power to rewrite/alter any credit agreement entered into after 6 April 2007 (ie all consumer credit agreements whether or not regulated by the CCA) deemed to be unfair. A credit agreement may be found to be unfair to the borrower for various reasons including the way the lender has exercised their rights or a specific term within the agreement.
If an agreement is found to be unfair, the court can, amongst other things:
order the repayment of sums to the borrower
order the lender to undertake a certain act (or not to take a certain act)
reduce, or even discharge, any sums owed by the borrower
alter any terms of the agreement as it sees fit
Credit card liability (section 75 protection)
Additional protection exists for consumers when they purchase goods or services with a credit card.
Where there is a breach of contract or misrepresentation by the supplier (eg if the product is faulty), joint liability for the creditor and supplier may arise, allowing the consumer to make a claim directly to the credit card provider (which is very useful if the supplier closes down). Joint liability only applies when the goods' value falls between £100 and £30,000. If the claim is successful, the lender will be liable in the same way as the supplier of the goods or services would have been.