The Consumer Credit Directive 2008 is intended to harmonise key provisions of consumer credit laws across the EU. It is implemented in the UK by a series of Regulations which came into force on 1 February 2011. The implementing Regulations apply to consumer credit agreements regulated by the Consumer Credit Act 1974, save for agreements secured on land.
The Regulations contain important new requirements regarding lending money or offering credit to consumers. The new provisions centre around strengthening protections for consumers and promoting the provision of more information to them - both before and after the credit agreement is entered into - to assist them in deciding whether to take out credit and, if so, from whom.
The new provisions are too lengthy to set out in detail, but include, for example, the following:
- Any advertisement including an interest rate or an amount relating to the cost of credit must give a representative example, including a representative APR.
- The rules for calculating the total charge for credit and the APR are slightly amended.
- The lender must give an adequate explanation of any credit agreement offered to allow the borrower to assess whether it is suited to his needs and financial situation.
- Pre-contractual information must be given in good time before the borrower enters into the agreement. It must be provided in a clear and easily legible standard format, to aid comparability, therefore allowing the borrower to take the information away and shop around, and to aid understanding.
- Borrowers have a 14 day cooling off period during which they can cancel a new credit agreement without giving any reason for doing so.
- Borrowers can terminate an open-ended agreement at any time on one month’s notice, whereas lenders are required to give two months’ notice of termination and give justified reasons.
- Lenders must inform borrowers where a debt is sold on, unless the arrangements for servicing the debt are unchanged.
Lenders to consumers need to be acquainted with the new provisions, and to have amended their processes and procedures accordingly. The old provisions continue to apply to business loans, loans secured against land and in some areas to loans exceeding £60,260, but lenders have the option to comply with the new rules in relation to these should they prefer.
As always, it is essential that lenders have correct documentation. It’s also important to ensure that any Consumer Credit Act related challenges are resisted.
Nicole Da Silva, Solicitor