Consumer Credit Act update

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Not sure if this has any major implications, but for your information.

 

 

Consumer Credit Act 2006

 

 

On Thursday 30th March 2006 the Consumer Credit Bill gained Royal Assent and is now the Consumer Credit Act 2006.

 

But what does this actually mean?

 

The Consumer Credit Act is the biggest overhaul of consumer legislation since 1974. The overall aim of the Act is to protect consumers and create a fairer and more competitive credit market. In doing so it introduces changes to the licensing of consumer credit businesses and additional powers to drive rogue traders out of the market.

 

Under the Act consumers will be entitled to:

 

· Take complaints about lenders to the Financial Ombudsman Service.

· Challenge unfair credit agreements in court. The current ‘extortionate credit’ test is replaced with a test based on ‘unfairness’.

· A new ‘Alternative Dispute Resolution’ scheme is introduced.

· Be entitled to receive more information about the state of their account to help identify potential problems before it is too late.

 

Some Questions:

 

How will the Act help consumers?

Consumers will be able to exercise their rights more effectively to challenge unfair conduct by lenders. Consumers will also receive better protection through the reformed licensing system and more information about the state of their account.

· Effective dispute resolution: If a consumer has complained to a consumer credit business and not received a satisfactory result, he or she will be able to make complaints to an Alternative Dispute Resolution scheme. This scheme will be run by the Financial Ombudsman Service – which already deals with certain financial services products – and will cover all consumer credit businesses. This is a quicker, cheaper and easier route than going to court.

· Challenging unfairness: The new unfair credit relationships test will provide consumers with a broad right to challenge unfair credit relationships in court. The court will have the power, if it finds that a relationship between a debtor or creditor is unfair, to remedy the unfairness by reopening the agreement or even setting it aside. The new test will also deter credit businesses from operating agreements unfairly, increasing competition and therefore hopefully raise standards across the industry.

· Informing consumers: Consumers will be kept informed of the status of their accounts throughout the life of their agreement. Lenders will be required to provide regular statements and information when there are problems, like going into arrears.

· Better protection: The OFT’s strengthened powers under the licensing regime will serve to keep rogues out of the market. This means that consumers can have confidence that the businesses they are dealing with meet the OFT’s required standard of fitness.

· Regulating all consumer credit: the Consumer Credit Act will regulate all consumer credit, unless specifically exempted. The only things that will be exempted are mortgages regulated by the Financial Services Authority under the Financial Services and Markets Act and certain transactions involving high net worth individuals. Business lending will not be regulated by the Act, except in very limited circumstances involving small transactions made by very small businesses.

How much will a consumer pay to resolve a dispute through the Financial Ombudsman Service?

Bringing a complaint to the Financial Ombudsman Service will be free to the consumer. If a consumer has complained to a consumer credit business and not received a satisfactory result, he or she will be able to make complaints to an Alternative Dispute Resolution scheme.

 

Will the Bill introduce maximum limits on interest rates for consumer credit?

 

No, the Government has decided not to introduce an interest rate ceiling on the basis of research by Policis (an independent company) on the effects of maximum limits interest rates in other countries. However, the Government will keep the decision not to introduce interest rate controls under tight review.

 

How will the Act tackle rouge lenders?

Businesses who provide credit or hire, or undertake certain credit-related activities must obtain a licence from the OFT.

The Bill strengthens the OFT’s powers to keep rogues out of the market, by enabling it to look forward to check that a business is competent to undertake credit business before awarding a licence.

The OFT will also have better powers to obtain information about licensees, and to impose requirements on a licensee if the OFT is dissatisfied with their conduct. If a requirement is breached OFT may also impose a financial penalty.

The changes in the Bill will also mean that lenders who are behaving badly are more exposed to consumer challenge through the new alternative dispute resolution scheme and the new unfair credit relationships test.

 

How will the Act benefit lenders?

 

· A more flexible licensing system with licences targeted at their particular area of business;

· A new indefinite licence removing the need for renewal.

· Reformed appeals system, where lenders can challenge decisions of the Office of Fair Trading (OFT).

 

Moreover, the OFT, which regulates the consumer credit industry, will also be given more effective powers to tackle issues with lenders quickly, and in proportion to the scale of the actual problem. This should enable the OFT to keep rouge traders out of the market.

 

The Act will cover all consumer credit agreements, at any amount. So the old financial limite of £25,000 is abolished.

 

Further Info including the full Act can be found at the DTI website:

http://www.dti.gov.uk/ccp/creditbill/

 

Fnancial-Ombudsman:

http://www.financial-ombudsman.org.uk/

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