Summary
- The Consumer Credit Act 1974, as significantly amended by the Consumer Credit Act 2006, regulates how businesses lend money to consumers in England, requiring lenders to be licensed by the FCA and to provide borrowers with key pre-contractual information.
- Consumers have statutory rights including a 14-day withdrawal period, the right to early repayment with a statutory interest rebate, and the right to access their credit files.
- The 2006 Act removed the £25,000 upper limit on regulated agreements and replaced the “extortionate credit bargain” test with a broader “unfair relationships” test, lowering the threshold for consumers to challenge credit arrangements.
- This article is a plain-English guide to the Consumer Credit Act for business owners operating in England who lend money to consumers, prepared by LegalVision, a commercial law firm.
- LegalVision specialises in advising clients on regulatory compliance and consumer credit obligations.
Tips for Businesses
Ensure your business holds the correct FCA licence before offering credit. Provide all required pre-contractual information clearly. Honour consumers’ 14-day withdrawal rights and early repayment entitlements. Review credit agreements regularly to avoid falling foul of the unfair relationships test.
As a business operating in England, you should familiarise yourself with some aspects of the Consumer Credit Act 1974 (‘CCA 1974‘) and its significant amendments made by the Consumer Credit Act 2006 (‘CCA 2006’). The 1974 Act established the original framework for consumer credit regulation, while the 2006 Act introduced major reforms to modernise consumer protection and align with EU legislation. It deals with the rules around how businesses can lend money to consumers, i.e. individuals. 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.
This guide outlines how to resolve commercial disputes.
What is the CCA?
The CCA 2006 introduces modernised rules ensuring 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.
Key Changes Introduced by the Consumer Credit Act 2006
The Consumer Credit Act 2006 made several significant amendments to the original 1974 Act, modernising consumer credit regulation.
The most significant change was the complete removal of the £25,000 upper limit for regulated consumer credit agreements. Previously, only credit agreements up to £25,000 were regulated under the Consumer Credit Act. From April 2008, all consumer credit agreements became potentially regulated regardless of amount. However, new exemptions from regulation were introduced including:
- Loans over £25,000 that are predominantly for business purposes
- Loans to partnerships of four or more people
- Loans to “high net worth” individuals who agree to forgo consumer protection
The 2006 Act replaced the narrow “extortionate credit bargain” provisions with a much broader “unfair relationships” test. This change lowered the threshold for consumers to challenge unfair credit arrangements and allows courts to examine the entire relationship between creditor and debtor, not just original agreement terms. The focus shifted from price to the creditor’s conduct throughout the relationship.
The reforms strengthened various consumer rights, including improved pre-contractual information requirements and clearer procedures for early settlement and withdrawal from agreements. They represented a fundamental shift toward more comprehensive consumer protection while maintaining appropriate exemptions for genuine business lending and high-value transactions.
Call 0808 196 8584 for urgent assistance.
Otherwise, complete this form, and we will contact you within one business day.
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.
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.
This guide outlines how to resolve commercial disputes.
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, LegalVision provides ongoing legal support for all businesses through our fixed-fee legal membership. Our experienced regulatory and compliance lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
What is the Financial Conduct Authority?
The Financial Conduct Authority is the UK regulatory authority overseeing the financial services sector.
What is APR?
APR, or Annual Percentage Rate, is the yearly interest generated by a loan given to a borrower.
What is the difference between the Consumer Credit Act 1974 and 2006?
The Consumer Credit Act 1974 is the main legislation governing consumer credit in the UK. The Consumer Credit Act 2006 amended the 1974 Act by removing financial limits on regulated agreements and introducing the “unfair relationships” test to replace the previous “extortionate credit bargain” provisions.
Are business loans covered by the Consumer Credit Act?
Business loans are generally exempt from the Consumer Credit Act, but there are important exceptions. Loans to sole traders and partnerships of fewer than four people can still be regulated under the Act, regardless of whether the loan is for business purposes.
We appreciate your feedback! Request your free consultation now.
