Spending rights

The Consumer Credit Act 1974 has been amended on many occasions since its enactment. It was not, however, until the passing of the Consumer Credit Act 2006 that it was given its first major overhaul. Like many Acts of Parliament, its implementation was dependent on commencement orders, and the first major commencement order has now set some relevant commencement dates. These are set out and explained below.

Commencement orders

The Consumer Credit Act 2006 (Commencement No 1) Order 2006 (SI no 1508) did little more than, from 16 June and 1 October 2006, bring into force those provisions of the 2006 Act which contained enabling provisions and appropriate definitions. Just two substantive provisions were brought into force; relating to the time allowed before action was taken under a default notice (increased from seven to 14 days); and allowing the Office of Fair Trading (OFT) to exempt, by general notice, certain consumer hire agreements from the right otherwise enjoyed by consumers to cancel such an agreement at any time. Of far greater significance is the Consumer Credit Act (Commencement No 2) Order 2007 (SI no 123).

Information sheets

Section 8 of the 2006 Act requires the OFT to prepare information sheets on arrears and default. This provision came into force on 31 January 2007. Each such sheet is to contain information and advice for debtors or hirers who have received default notices or notices of arrears. The information sheets are to accompany the relevant notices. Failure to provide them will render the particular agreement unenforceable. No date has yet been set, however, for the coming into force of the provisions relating to the sending of the relevant notices.

Definition of 'individual'

In essence, the 1974 Act covers agreements made with 'individuals'. Under s 189(1) of the Act, an 'individual' is defined to include a partnership not consisting entirely of bodies corporate, and any other unincorporated body itself not consisting entirely of bodies corporate. As from 6 April 2006, this definition is replaced, so that an 'individual' includes a partnership of two or three persons not consisting entirely of bodies corporate, and any other unincorporated body of persons that is neither a partnership nor consists entirely of bodies corporate.

Enforcement orders

A feature of the 1974 Act was the regime imposed on regulated agreements. These were agreements where the amount of credit provided did not exceed £25,000, or, in the case of a consumer hire agreement, the rental required also did not exceed £25,000. Such agreements were regulated by the Act, and had to conform to certain requirements; notably to be in the form prescribed by regulation, contain all the terms of the agreement except the implied terms; and also to be signed by the relevant parties.

An agreement not complying with these requirements could be enforced only on a court order. Importantly, s 127(3)-(5) provided that a court had no power to make an order where the customer's signature had not been obtained; or where certain formalities applying to cancellable agreements had not been followed. In other cases, the court had to dismiss an application for an order only if this was just and equitable. As of 6 April 2006, this latter will be the only test, so that even agreements lacking the customer's signature could be enforced.

Extortionate credit bargains

Sections 137-140 of the 1974 Act applied to consumer credit agreements even if they were not regulated; that is to say, they applied even if the amount of credit extended exceeded the £25,000 limit. If the court found that the credit bargain made between the parties was extortionate, it could reopen the agreement. A credit bargain was extortionate if payments to be made were grossly exorbitant, or if the bargain otherwise grossly contravened the ordinary principles of fair dealing.

As of 6 April 2006, this regime will be replaced by that of the unfair relationship. It will remain the case that the 1974 Act will apply even to agreements that are not regulated, but the test for reopening the agreement will be whether the relationship between the parties is unfair. This will require the court to examine the terms of the agreement; the way in which the creditor has enforced the agreement; and any other thing done or not done by the creditor or on his behalf.

Yet to come

(i) Regulated agreements

The 1974 Act also provided that agreements within the Act were those made with individuals (the definition of which has now changed, as described above) where the credit extended, or the rental required, did not exceed £25,000. The 2006 Act will remove that limit altogether. At the same time, the 2006 Act provides that agreements above that limit will be exempt from regulation under the 1974 Act if the agreement was entered into wholly or substantially for the purposes of business.

The intention is to bring these provisions into force on 6 April 2008. The 2006 Act also proposes to exempt agreements made with 'high net worth' individuals. The current intention is to define such an individual as one earning more than £100,000 a year, or one whose assets exceed £250,000. Again, the intention is to bring these provisions into force on 6 April 2008.

(ii) Provision of information

The 2006 Act builds on the 1974 Act by providing for more information to be provided by a creditor or owner. As noted above, notices of arrears will be required, and so will notices of default sums payable in the event of breach, and notices of intention to rely on contractual provisions as to claiming post-judgment interest. It is the intention that such provisions will be implemented on 6 April 2008.

(iii) Licensing system

The 1974 Act requires those providing credit or hire under regulated agreements to be licensed by the OFT. This regime will remain substantially intact, but the OFT will be given enhanced powers as to the provision of information, and will also have stronger powers as to action taken against licensees. Changes will also be made to the duration of licences. These provisions are also intended to come into force on 6 April 2008

(iv) Ancillary credit businesses

The 1974 Act covered not just businesses engaged in agreements for credit or hire, but also to ancillary credit businesses; namely, credit reference agencies, credit brokerage, debt adjusting, debt collecting and debt collecting. The 2006 Act adds two further such businesses; namely, debt administration and credit information services. Here, it is proposed to bring the relevant provisions into force on 1 October 2008.

(v) A missed deadline

The 2006 Act provides for amendments to be made to the Financial Services and Markets Act 2000, so that the Financial Ombudsman Scheme can award binding sums of up to £100,000 in the event of consumer complaints made in relation to a consumer credit or consumer hire business. The original intention was for these provisions to be in force by 6 April 2007, but the relevant provisions were not part of the most recent commencement order. No other date has yet been indicated.

Practices Directive

The Unfair Commercial Practices Directive (2005/29/EC)is due to come into force in member states on 12 December 2007, and, in the UK, preparations for that deadline are advanced. In relation to the Consumer Credit Act, its implementation will have some significance. At the moment, creditors or owners who fail to provide customers with certain specified information can commit a criminal offence. Under the Directive, these offences will be removed. The Directive will also repeal the provisions of the 1974 Act relating to false or misleading advertising.

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