Key provisions of the Consumer Credit Act 2006 were brought into force on 6 April 2007. The following changes amend the Consumer Credit Act 1974 (the “Act”) and represent a significant reform to this regime.
- New definition of “individual”. New lending to partnerships of more than 3 persons is excluded from regulation.
- Abolition of automatic unenforceability. Courts will now have discretion to enforce all invalidly executed agreements; the restrictions on this discretion, which applied in respect of certain infringements have now been lifted.
- Financial Ombudsman Service (“FOS”). A new consumer credit jurisdiction is added to FOS’ existing mandate. Customers will be entitled to refer complaints (relating to an event after 6 April 2007) to FOS after they have raised the matter with the licencee. Businesses must ensure they have an complaints handling policy and that it meets the minimum standards set out by the DISP Sourcebook, part of the Financial Service Authority’s Handbook. Businesses should also ensure that relevant changes are made to agreements/other documents to include a reference to FOS.
- Unfair relationships. This test replaces the extortionate credit bargain provisions. These (significantly wider) provisions will apply to all new consumer lending (not just regulated agreements) except FSA regulated mortgage contracts. However, there will be a transitional period, until 6 April 2008, before application is extended to existing agreements.
The next key implementation date is due to be 6 April 2008, when the following provisions are likely to come into effect:
- Removal of £25,000 limit. The Act will apply to lending (consumer credit and hire) up to any amount. However, this limit will still be retained for business lending and there will be an exemption for high net worth individuals (see below). The Department of Trade and Industry (“DTI”) is currently addressing the fact that not all lending over £25,000 for the purposes of buy-to-let will fall outside the scope of the Act, which was the original intention.
- High net worth exemption. The Act will enable wealthy individuals to opt out of regulation. This will involve completion of a declaration and a statement of high net worth. There is no provision for self-certification though the DTI has stated that it is currently making the arrangements for certification to be more flexible.
- Reform of licensing regime. OFT will be given enhanced powers as regulator under the Act, including the ability (in certain circumstances) to impose civil penalties up to £50,000.
- Consumer Credit Appeals Tribunal. This will allow licensees to challenge decisions taken by the OFT. and replaces the existing regime of appeals to the Secretary of State.
1 October 2008 will mark the final implementation date when the following provisions are due to be introduced:
- Post contract transparency. These provisions (which were originally due to come into effect in April 2008) will impose minimum standards, including: Periodic statements for fixed sum credit.Periodic information on statements for running account credit (e.g. health warnings).Arrears notices.Requirements relating to default notices (the period for consumers to respond to default notices has already been extended under the Act from 7 to 14 days). In addition, interest on default sums will also be restricted to simple interest. Failure to comply with the above requirements will impact on an agreement’s enforceability.
- New categories of business. Debt administration and credit information services will become activities requiring a consumer credit licence.