Looking into the impact of the Consumer Credit Directive on UK Lenders.
The Consumer Credit Directive (2008/48/EC) (the Directive) came into force in the UK on 1 February 2011. The Directive has resulted in significant changes to the Consumer Credit Act 1974 (CCA).
The key amendments to the CCA brought about by the Directive are; Pre-contractual explanations, Creditworthiness, Notifications, Credit intermediaries, Pre-contractual documents, APR calculation, Right of withdrawal, Partial early settlement and Overdrafts.
The challenges for consumer credit lenders are not only the direct implementation of the directive but also other changes currently in the pipeline. These include; the consideration of whether to impose interest rate caps; calculation of the annual percentage rate (APR) with the European Commission preparing to publish APR guidelines and in the midst of the worst financial crisis in living memory, consideration of the unprecedented level of regulatory change as the FSA will be replaced by several new regulatory bodies (including the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA).
Further challenges for UK Lenders include the changes introduced by the Directive which have been bolted on to the existing regime, resulting in a complex dual system in operation in the UK. The scope of the Directive is much more limited than the UK regime. For example; the Directive applies to consumer credit agreements and conditional sale agreements, but not to hire agreements.
All lenders should note the Office of Fair Trading has made it quite clear that it expects all lenders to ensure that the loans they provide are affordable and that the test is a borrower-focused assessment, meaning that it is different to an assessment of credit risk, which is ultimately a lender-focused decision based on what level of risk the lender is prepared to accept. Overall, these are exceptionally challenging times for UK Lenders and the road ahead is unclear and unfamiliar.
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