Thread: Application of the Consumer Credit Act 1974 and Unfair Terms in Consumer Contracts Re

Application of the Consumer Credit Act 1974 and Unfair Terms in Consumer Contracts Regulations 1999

Application of the Consumer Credit Act 1974 and Unfair Terms in Consumer Contracts Regulations 1999
may impede collection efforts and could cause early redemption of your notes and/or a loss on your
notes.
The primary statute dealing with consumer credit in the United Kingdom is the Consumer Credit
Act 1974 – which we will refer to in this base prospectus as the ‘‘Consumer Credit Act’’. The Office
of Fair Trading (the ‘‘OFT’’) is responsible for the issue of licences under, and the superintendence of,
the CCA, related consumer credit regulations and other consumer protection legislation. The OFT
may review businesses and operations, provide guidelines to follow and take action when necessary.
Currently, a credit agreement is regulated by the CCA where (a) the borrower is or includes an
individual, (b) the amount of ‘‘credit’’ as defined in the CCA does not exceed the financial limit,
which is £25,000 for credit agreements made on or after 1 May 1998 and lower amounts for credit
agreements made before that date and (c) the credit agreement is not an exempt agreement under the
CCA. A vast majority of the credit card transactions which occur on a designated account have or
will have a credit limit of an amount up to £25,000. Accordingly, the Consumer Credit Act applies
to the transactions occurring on the designated accounts and, in whole or in part, to the credit card
agreements. This may have consequences for your investment in the notes because of the possible
unenforceability of, or possible liabilities for misrepresentation or breach of contract in relation to, an
underlying credit card agreement.
(a) Enforcement of improperly executed or modified credit card agreements
Any credit card agreement that is wholly or partly regulated by the CCA or treated as such has
to comply with requirements under the CCA as to licensing of lenders and brokers, documentation
and procedures of credit card agreements and (in so far as applicable) pare-contract disclosure. If it
does not comply with those requirements, then to the extent that the credit card agreement is
regulated by the CCA or treated as such, it is unenforceable against the borrower (a) without an
order of the OFT, if the lender or any broker does not hold the required licence at the relevant time,
(b) totally, if the form to be signed by the borrower is not signed by the borrower personally or omits
or mis-states a ‘‘prescribed term’’ or (c) without a court order in other cases and, in exercising its
discretion whether to made the order, the court would take into account any prejudice suffered by

the borrower and any culpability of the lender. If a credit card agreement related to a designated
account has not been executed or modified in accordance with the provisions of the Consumer
Credit Act and is completely unenforceable as a result, the principal receivables arising thereon will
be treated as ineligible receivables. See ‘‘The Receivables – Representations’’.
With respect to those credit card agreements which may not comply with the Consumer Credit
Act, such that a court order could not be obtained, the originators estimate that, on any pool
selection date or additional selection date, this will represent less than 1 per cent. of the aggregate
principal amount of receivables in the designated accounts. The originators do not anticipate any
material increase in the percentage of these receivables in the securitised portfolio. In respect of
those designated accounts that do not comply with the Consumer Credit Act, it will still be possible
to collect amounts owing by cardholders and seek arrears from cardholders who are falling behind
with their payments. It is unlikely that the originators will have an obligation to pay or to account to
a cardholder for any payments received by an originator because of this non-compliance with the
Consumer Credit Act. Any such receivables will be treated by the receivables trustee as ineligible

receivables. See ‘‘Representations’’.

Similar Threads:

• Unfair Contract Terms In Consumer Contracts Regulation
• Contracts signed pre July 1995 and The Unfair Terms in Consumer Contracts Regulations
• MBNA CC application form and Consumer Credit Act 1974

Under the Unfair Terms in Consumer Contracts Regulations 1999 a cardholder may assert claims against the terms of the credit card agreements used by the originators which, if successful, may adversely affect our notes.

The Unfair Terms in Consumer Contracts Regulations 1999 (the ‘‘

UTCCRs’’) provide that certain unfair terms in consumer agreements shall not be binding on consumers. A consumer may challenge
the fairness of a term in court. If a consumer has made payments under an unfair term obliging the consumer to do so, the consumer may seek to recover those payments or set off those payments
against future payments under the agreement. The OFT and other bodies may seek a court order
preventing a business from relying on an unfair term. The OFT has power to commence proceedings
against card issuers who they believe have breached the UTCCRs, including for injunctive relief.
The OFT wrote to RBS in October 2003 regarding a number of terms in its standard credit card terms and conditions. RBS corresponded with the OFT and has resolved all of the issues except in
relation to the level of administration charges. RBS has expressed throughout that it believes the level of its administration charges is fair and does not contravene the UTCCRs.

The OFT engaged in a three month consultation period with RBS and seven other major credit card companies on the level of credit card administration charges in 2005. RBS (and the other main
UK credit card providers) each received a letter from the OFT dated 25 July 2005 (believed to be in broadly similar terms). In the letter, the OFT set out its preliminary conclusion that the level of administration charges levied by the main UK credit card issuers is excessive. The OFT gave RBS and the other card issuers three months to give certain undertakings in relation to the way in which
administration charges are estimated or to otherwise address the OFT’s concerns.

On 25 July 2005 the OFT expressed the provisional view that the level of these charges needs to be reduced in order to be fair. RBS responded to the OFT’s letter on 24 October 2005 declining to give any undertakings and setting out its reasons for rejecting the OFT’s assertion that these
charges are unfair.

However, on 5 April 2006, the OFT made an announcement to the press and public at large:

*

setting out its view of the principles credit card issuers should follow in setting default charges in their standard contracts with consumers in order to meet the test of fairness under the UTCCR 1999; and

*

stating that those principles have wider implications for analogous standard default terms in other agreements including those of mortgages, bank current accounts and storecards.

In summary, the OFT’s view is that default charge provisions are unfair if they have the object of raising more in revenue than is reasonably expected to be necessary to recover certain limited administrative costs incurred by the credit card issuer. The OFT has adopted a ‘‘two fold regulatory strategy’’ to deal with its finding: (i) it has purported to provide guidance to credit card issuers which
can be used by those credit card issuers in order to arrive at a fair default fee; (ii) a simple threshold of £12 has been set for intervention by the OFT on default charges. The OFT has informed customers
that they are free to take account of its statement in deciding whether to question default fees that they have been charged.

Although RBS continues to believe that the level of its administration charges has always been fair and transparent, and disagrees with the legal position set out in the OFT’s announcement, on
5 June 2006 RBS responded to the OFT confirming that it would reduce its late payment and overlimit fees to £12. RBS’ other administration fees are already set below the OFT’s intervention limit.

If the administration charge in an RBS credit card agreement was found to be unfair, the receivables trustee may not receive payments from borrowers which it might currently expect to receive.
A reduction in the level of administration charges may result in a reduction in the amounts received by RBS under its credit card agreements. Furthermore, if any term of the credit card agreements was found to be unfair, RBS may be subject to claims from cardholders seeking
reimbursement of administration charges paid although these amounts will not be payable by the receivables trustee in the case of credit card agreements in the securitised portfolio.

Failure to notify cardholders of the transfer of receivables could delay or reduce payments on your notes.

No notice has been given to cardholders of any transfers previously effected, and no notice is
expected to be given to the cardholders of any future transfers of receivables to the receivables trustee. The receivables trustee has agreed, amongst other things, that notice of the transfers will not
be given to cardholders unless RBS’ long-term senior unsecured indebtedness as rated by Moody’s, Standard & Poor’s or Fitch Ratings were to fall below Baa2, BBB or BBB, respectively. The lack of notice has several legal consequences that could delay or reduce payments on your notes.
Until notice is given to a cardholder and, where necessary, a legal transfer of the receivable is made, the cardholder will discharge his or her obligation under that designated account by making payment to the relevant originator.

Until notice is given to a cardholder who is a depositor or other creditor of that originator, equitable set-offs may accrue in favour of the cardholder against his or her obligation to make payments to that originator under the designated account. These rights may result in the receivables
trustee receiving reduced payments on the relevant receivables. The transfer of the benefit of any receivables to the receivables trustee will continue to be subject both to any prior equities that a
cardholder has and to any equities the cardholder may become entitled to after the transfer. Where notice of the transfer is given to a cardholder, however, some rights of set-off may not arise after the
date notice is given.

Failure to give notice to the cardholder means that the receivables trustee would not take priority over any interest of a later encumbrancer or transferee of the relevant originator’s rights who
has no notice of the transfer to the receivables trustee where such later encumbrancer or transferee gives notice. This could lead to a loss on your notes.
Failure to give notice to the cardholder also means that the relevant originator or the cardholder could amend the credit card agreement without obtaining the receivables trustee’s consent. This
could adversely affect the receivables trustee’s interest in the receivables, which could lead to an

early redemption of or a loss on your notes.

see

http://www.consumeractiongroup.co.uk...-consumer.html

&

http://www.consumeractiongroup.co.uk...ml#post1485646

see bankfodders thread many years ago

http://www.consumeractiongroup.co.uk...contracts.html