10 Feb 2020

What is the Consumer Credit Act?

The Consumer Credit Act (CCA) was put in place as a way of regulating how credit is sold and protecting consumers every time they choose to buy something using credit. In this way, it should have the effect of empowering consumers.

What does the Consumer Credit Act do?

The objective of the CCA is to regulate consumer credit in the UK. It covers areas such as the extensive information you’re given as you enter into a credit agreement, the format of how credit agreements are presented, the procedures around early settlements, terminations and defaults, and the protocol for calculating annual percentage rates (APR). An important factor of the CCA is that it sets strict rules about how agreements can be cancelled and what rights consumers have if they want to end a credit agreement. It also provides extra protection for credit card purchases between £100 and £30,000.

Under the act, the company providing credit must clearly state the nature of the agreement, the name and address of the creditor, and the name and address of the credit intermediary if there is one. They must also provide additional details, such as the type of credit being used, the total amount payable through the plan, the duration of the credit agreement, how much credit is being used and the limit on the agreement, the rate of interest, the total cost of the credit and the APR, any extra charges and when those charged could apply, and when each repayment will be made. This information will be provided in a pre-contract agreement, and a formal letter including this information should be sent directly to the person requesting credit within seven days.

How does the Consumer Credit Act affect consumers?

The CCA affects both businesses and consumers. Much of the act is focused on making sure that lenders treat their customers fairly, follow responsible lending practices, display all information clearly so that consumers understand the terms of the agreement they’re entering into, and that the lender is abiding by the laws on supplying credit.

It insists that companies must have a licence to give credit, they mustn’t invite anyone under 18 to borrow or buy on credit, and they must clearly state the APR and all costs which apply to the credit they’re providing.

The CCA protects consumers by making sure that they have plenty of time to change their mind and cancel the application, even after they have received the credit. Most credit agreements must give the consumer the option to withdraw from it within 14 days without giving a reason or suffering any penalties. This is known as the ‘cooling off’ period, and it starts as soon as the agreement begins, which is usually when the person applying for credit officially receives a copy of the agreement.

What is the Consumer Credit Act 1974?

Administered by the Director General of Fair Trading, the Consumer Credit Act 1974 was the first edition of the CCA. It was originally put in place to control licensing and trading of goods and how this worked alongside consumer credit, with additional considerations such as moderating the way in which moneylenders, pawnbrokers and hire-purchase traders operate.

While this act was useful to people looking to borrow money or goods at the time it was enacted, it’s become even more relevant to modern consumers since there are now far more ways to use credit, many of which can be accessed without ever speaking to another person. For example, this can be true of catalogue websites and store credit cards

What does the Consumer Credit Act 2006 do?

Legislation is often updated to account for changes in the world. This is also true of the Consumer Credit Act 1974, which was updated with amendments in 2006. Changes to the act included:

  • Altering the definition of the word ‘individual’ to allow firms with four or more partners to benefit from not being subjected to the CCA’s documentation requirements
  • Making business lending in excess of £25,000 exempt from the act
  • Removing the financial limit of £25,000 in consumer credit agreements
  • Adding new forms of notices to customers in arrears for fixed sum and ongoing account credit
  • Adding notices for when additional payments are due on defaults
  • Extending the default notice from seven to 14 days
  • Introducing new information sheets on defaults and arrears.

Does the Consumer Credit Act apply to mortgages?

Although the CCA covers a lot of the credit we use, it doesn’t apply to all debt. This includes most mortgages or other loans secured against land or property, as well as individual debt between family and friends, household electric, gas and water bills, government debt such as council tax or general taxes, charge cards, unlicensed lenders or loan sharks, and some cases of credit union loans, peer to peer lending or business debt.