All dealings between banks, finance houses, other lenders and their consumer customers (the Act will not regulate agreements where the borrower is a limited company) are regulated in some way by the Consumer Credit Act 1974 (most recently amended by the Consumer Credit Directive). An agreements that fail to meet the criteria as set down by the CCA is potentially unenforceable against the consumer without permission of the Court, or in some circumstances, at all.
The Act also prescribes the procedures that must be followed before enforcement proceeding are issued, for example, the service of arrears notices and default notices, without which the proceedings will be stopped.
The Act now covers all agreements offering credit if any is sought, either by loan hire, purchase or running account, as well as equipment leases. There is no upper limit as to the amount (the old limit to £25,000 was abolished in 2006) and will apply between a lender and an individual or partnership of up to three members for whatever purpose the loan was made.
The Act introduces rigorous procedures with regards to the creation of an agreement regulated by the Act. It must be in writing, contain all the terms and conditions, and must be signed by both parties. The agreement must also contain details of the equipment, although the subject of the agreement, the amount and frequency of the repayments, then the total amount of interest being charged for the credit offered.
If the agreement relates to hire purchase finance, then the agreement must also contain a statement of the debtors right to terminate the agreement upon payment of half the instalments, and a statement that the lenders right to recover the goods hired under the agreement, is restricted so that if more than one third of the payments have been made, an application must be made to the Court before the goods can be recovered.
If the agreement is for example signed in blank, in that the financial details were left out, or the format of the agreement was wrong so that the terms and conditions cannot be read, or the signature box does not have the appropriate warnings or the agreement is cancellable (which it will be if it was signed in the presence of the lender at the borrowers premises), then the agreement is unenforceable unless the Court grants permission for that to be done on application by the lender. The Court will normally grant permission, unless it is satisfied that the lender was grossly negligent, or coupable in some way in that the information omitted, was being deliberately concealed from the consumer.
Consumer Credit Licenses
The Act also stipulates that any person carrying on a business, which involves offering credit under the terms and of the act, must have a consumer credit license, which is granted by the Office of Fair Trading. A breach of the act by that individual or company may mean that its license is revoked, which in turn will prevent the company from proceeding with its business.
Should such an event occur, then there are appealed processes opened followed by the consumer credit license holder, but these are serious matters, and everyone should be aware that consistent breaches of the act is likely to result in some steps being taken by the Office of Fair Trading, perhaps with the instigation of the local trading standard department, to have the relevant license revoked and which will mean a substantial loss of business.
The Act requires that before proceedings can be issued, various notices have to be served by the lender on the consumer warning them of the default, and given them the chance to rectify that default within a 14 day period. This is specifically in the case of a default notice. If a default notice is not served, then the Court proceedings will be ineffective until that step has been taken.
It is common for a guarantee to be signed by a third party to guarantee the liabilities of a consumer. If this is the case with a regulated agreement, then the guarantor is entitled to be sent copies of all of the documents that are served upon the consumer. Normally of course, the guarantor will also be joined into the Court proceedings.
Request for information
Consumers are entitled to seek a copy of their agreement from the lender upon payment of the prescribed fee of £1.00. If the lender fails to provide such a copy, then it would be unable to enforce the agreement until it has done so.