What is the Consumer Credit Act 2006 in England?

As a business operating in England, you should familiarise yourself with some aspects of the Consumer Credit Act 2006 (‘CCA‘). The CCA is a piece of legislation that deals with the rules around how businesses can lend money to consumers. As a result, it is relevant if your business deals with lending money to people not acting in a business capacity. This article will outline what the CCA is, what the Act covers, and the critical points you should keep in mind if you intend to lend money to consumers.

What is the CCA?

The CCA introduces new rules regarding consumer protection in retail lending and credit. As a result, it is relevant if you are either seeking to lend money to consumers or seeking to obtain credit in a non-business capacity. 

The CCA covers many different types of debt and credit, including:

• hire purchase agreements;
• credit cards;
• personal loans; and
• buy now, pay later agreements

It does not cover agreements that it refers to as ‘unregulated debts’. This includes certain types of: 

• business debts; 
• mortgages; 
• household utility bills; and 
• debts towards a council (for example, council tax).

The Act also requires the Financial Conduct Authority (‘FCA’) to license certain types of lenders. Without proper licensing, a lender cannot reach a regulated agreement with the borrower. Furthermore, this will come with several negative legal implications for the lender. As a result, if you are considering lending as part of your business practice, you must understand your regulatory obligations before starting your business. 

What Information Must a Creditor Make Available?

A creditor dealing with a consumer must make certain information available to the consumer before they reach an agreement. The information that must be made available includes:

• how long the agreement will be for;
• the identity and the address of the credit provider;
• the total amount to pay back;
• the credit limit;
• the APR and interest rate related points; and
• the type of credit given.

The Right to Withdraw from a Credit Agreement

The CCA gives consumers the right to withdraw from a credit agreement within 14 days of receiving a copy of the terms of the agreement. However, suppose a consumer decides to cancel the agreement. In that case, they must pay back any money they have received, alongside any interest accumulated up to the cancellation of the agreement. 

This rule does not apply to secured loans where the security is on a piece of land, and also on credit agreements where the amount is more significant than £60,260. 

A consumer borrower may decide to pay back the loan early. In this case, the CCA states that the borrower will not have to pay back the entire interest amount per the original terms of the credit agreement. Instead, the consumer may pay back a statutory interest rebate. 

Furthermore, the consumer will have to write to the lender stating that they want to clear the debt. The lender will have seven days to get back with a settlement figure. The settlement figure will be the amount owed (plus interest) minus the statutory interest rebate. 

The Right to See Credit Files

A consumer borrower will also have the power to see their credit files, as held by a credit reference agency. 

Further, a credit file will outline an individual’s credit history. Indeed, that individual can request amendments (if there is wrong information within the file), which the credit reference agency must consider within 28 days. 

Finally, a consumer borrower can bring any issues to a financial ombudsperson service. Although most borrowers will first go to the creditor to discuss any issues, an ombudsman scheme can help resolve more complex problems.

Key Takeaways

As a business that lends money to consumers, you should be familiar with the CCA. Primarily, the Act requires lenders to make specific amounts of information available to a borrower, including the: 

• terms of the agreement; 
• interest payable; 
• details of the lender; and 
• total sum that must be repaid. 

Consumers also have many statutory rights. For example, the right to withdraw from a credit agreement within 14 days and the right to see their credit files. Failure to comply with statutory requirements can result in legal liability for the lender.

If you need help understanding your obligations and rights under the CCA, our experienced regulatory and compliance lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.

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