PART III: A COMPARISON WITH INTERNATIONAL LEGISLATION AND MEASURES
CHAPTER 8: GREAT BRITAIN
8.6. Amendment of the Consumer Credit Act
During July 2001, the Secretary of State for Trade and Industry announced that the
1974 Consumer Credit Act would be reviewed.764 As a result, the Department of Trade
and Industry and the Department for Work and Pensions published a paper765 that
indicated the need for reform. The need for reform was supported by the increasing dissatisfaction of consumers regarding the lending practices of creditors, the number of
consumers that struggled with their debt repayment766 and the over-indebted
suicides.767
On 30 March 2006, the royal assent was given to the Consumer Credit Act 2006 and the amendments to the 1974 Act were implemented in Great Britain over a period of two
(2) years.768 The amendments (2006) introduced the following main changes to the
Consumer Credit Act of 1974:
(i) Abolishing the £25,000 threshold
762
Regulation 3 of the Consumer Credit (Disclosure of Information) Regulations 2004, SI 2004/1481.
763
Regulation 8 of the Consumer Credit (Disclosure of Information) Regulations 2004, SI 2004/1481.EU Commission Directive 2011/90/EU (effective 1 January 2013) at par 2.7 page 6 (Chapter 9 & 10).
764 Slaughter et al. “Consumer Credit Act 2006: Amendments to the Consumer Credit Act 1974” (2008)
at 5
765
“Tackling Over-Indebtedness – Action Plan 2004”
766
Richards et al. “Irresponsible Lending?” (2008) at 502
767
Fletcher “Debt Suicides” The Mirror (2006)
768 Slaughter et al. “Consumer Credit Act 2006: Amendments to the Consumer Credit Act 1974” (2008)
This amendment meant that all consumer credit agreements will fall under the scope of the Consumer Credit Act and this became effective as from 6 April
2008.769 However, certain credit agreements are exempted from the operations of
the 2006 Consumer Credit Act, namely:
(a) credit agreements provided to businesses;770
(b) high nett-worth771 debtors772; and
(c) partnership of more than three persons.773
This removal of limit resulted in all credit agreements entered into with consumers will be protected by the Consumer Credit Act, except those credit agreements entered into for business purposes of with debtors worth more than £150,000 or with partnerships consisting of more than three persons.
(ii) Licence requirements
The OFT may issue a licence for a fixed period of time, which may not exceed the
maximum period774 prescribed by the Secretary of State.775 The 2006
amendments also provided the OFT with the power to assess the competence of a business to provide credit before issuing a licence. This is referred to as the
“fitness test” that became operational on 6 April 2008.776 When considering
whether issuing of the licence, the OFT will consider evidence of past misconduct, knowledge, experience and skills that the people participating in the business have in relation to the licenced activity and the practices and procedures of the business
to whom the licence will be issued.777
769
Slaughter et al. “Consumer Credit Act 2006: Amendments to the Consumer Credit Act 1974” (2008) at 6
770
s 16B
771
A net annual income during the previous financial year of not less than £150,000 or net assets (disregarding the primary residence and certain pensions and insurance assets) throughout the previous financial year of not less than £500,000.
772 The debtor is a natural person, also see s 16A 773
SI 2007/1168
774
This period is currently not more than 5 (five) years.
775
s 34
776
s 25A
777 s 25A read together with Consumer credit licencing: General guidance for licenses applications on
This power given to the OFT to issue licences is an ongoing responsibility. The
OFT will also consider whether creditors are fit to hold their credit licence.778
Should the OFT be dissatisfied with a creditor, they will issue a notice in this
regard.779
In McGuffick v The Royal Bank of Scotland PLC780 the court’s attention was drawn
to section 25 of the Act781 where the OFT can consider whether a creditor is fit to
hold a licence if there is evidence that the applicant is engaged in a business practice which can be considered deceitful or unfair or improper, which includes
irresponsible lending.782 Therefore, section 25 of the Act reformed the licensing of
providers of consumer credit services as well as the powers and functions of the OFT in relation to the issuing of the licence to provide credit to consumers.
(iii) Unfair relationship test
This test replaced the “extortionate credit bargain” test, which enables the
consumer to challenge the unfair relationship with creditors783 in court. As a result,
hereof the court has the power to re-write unfair credit agreements.784
The reformed provisions became effective on 6 April 2007.785 Under the 1974 Act
the consumer was required to make payments at the time of the credit agreement was made, which was grossly exorbitant and considered to be in contravention of
778
s 33B
779
s 33B(2) and (3)
780 [2009] EWHC 2386 (Comm)(6 October 2009)
781 Consumer Credit Act of 1974 as well as the amendment of 2006 782
s 25(2B), which resulted in the OFT to set up the irresponsible lending project in August 2008, I.e. OFT 1107
783
s 140A
784
s 140B also see Doorstop Ltd. v Gillman & Lepervier [2012] JRC 199 (1 November 2012)
785 Slaughter et al. “Consumer Credit Act 2006: Amendments to the Consumer Credit Act 1974” (2008)
the ordinary principles of fair dealing.786 The following instances will constitute an unfair relationship”:
(a) any of the terms of the agreement;787
(b) the manner in which the creditor has exercised of enforced their rights under
the credit agreement;788
(c) any other thing done (or not done) by or on behalf of the creditor, before or
after entering into the credit agreement.789
“Unfair” is a concept that is very well known in consumer protection.790 On 26 May 2008,
the Unfair Commercial Practice Directive was implemented in Great Britain.791 This
directive stated that a practice would be unfair if:792
(a) It contravenes the requirements of professional diligence; and
(b) It materially changes the economic behaviour of the consumer with regard to the credit agreement.
“Professional diligence” is described as “the standard of special skill and care which a trader may reasonable be expected to exercise towards consumers which is commensurate with either (a) honest market practice in the trader’s field of activity; or
(b) the general principle of good faith in the trader’s field of activity”.793
These amendments appeared to provide clearer guidance to credit providers and consumers when entering into credit agreements.
786
Slaughter et al. “Consumer Credit Act 2006: Amendments to the Consumer Credit Act 1974” (2008) at 15, also see Doorstop Ltd. v Gillman & Lepervier [2012] JRC 199 (1 November 2012)
787
s 140A(1)(a)
788 s 140A(1)(b) 789 s 140A(1)(c) 790
“The Unfair Commercial Practice Directive” Directive 2005/29/EC and “Consumer Protection from
Unfair Trading Regulations” SI 2008/1277 791
Slaughter et al. “Consumer Credit Act 2006: Amendments to the Consumer Credit Act 1974” (2008) at 21
792 SI 2008/1277 Regulation 3 793