1 service under a minimum notice
contract
(58) Where the terms of a contract
provide that a specified period of notice is required to terminate the service provided, that service provider must :
(1) not mislead the consumer, either expressly or orally by advertising the service as a service without a contract and (2) where a notice period is expressly
stated, advise the consumer that such a notice period applies.”
Effect
This amendment inserts a new clause into the Bill and seeks to prevent service providers incorrectly promoting their goods and services as a ‘no contract’ service.
Reason
The Society is concerned that an increasing number of service providers, particularly in the telecommunications sector, are incorrectly and openly promoting their service as a ‘no contract’ service1. Such services are generally subject to a 28 day cancelation notice period. By requiring the service user to provide 28 days’ notice the service provider is effectively tying the user into the contract. In addition, the provision of the service itself in return for payment is a contract which binds both parties.
1Example: http://www.directsavetelecom.co.uk/homebroadband_basic.php
2 Clause 76, page 41, line 25 at end insert the following new clause –
“Part 3 – Regulated Consumer Credit Agreements
Unfair relationships
(1) Before a regulated consumer credit agreement, other than an excluded agreement, is made, the creditor shall advise the borrower in writing of his or her rights as a borrower under sections 140A and 140B of the Consumer Credit Act 1974 ’”
Effect
This amendment, which relates to consumer credit agreements, will ensure that borrowers are made aware of their rights, and the protection afforded to them under sections 140A and 140B of the Consumer Credit Act 1974, as inserted by sections 19 and 20 of the Consumer Credit Act 2006.
Reason
A borrower is protected against the effects of an unfair relationship, by the Consumer Credit Act 1974 (CCA), which empowers the court to make an order under section 140A determining that a relationship between the creditor and debtor is unfair because of:
a) any unfavourable terms in the agreement,
b) the way the creditor has sought to enforce or exercise any of their rights under the agreement, or
3 Section 140B provides that an order made by the court on a finding of ‘unfair relationship’ may:
a) require the creditor, either in whole or part, to repay any sum to the debtor b) require the creditor to refrain from, or to carry out, any action as specified in
the order
c) reduce or discharge any sums due to the creditor by the debtor d) set aside any duty imposed on the debtor
e) alter the terms of the agreement.
This offers significant protection to the borrower from inequality in bargaining power.
There have been a number of cases2, since Sections 140A and 140B came into force in 2007, where the courts have ruled in favour of the debtor finding that an unfair relationship had indeed arisen to the detriment of the debtor. Currently there is no duty on the lender to advise the borrower of their rights under sections 140A and 140B of the CCA. Borrowers should be properly advised by the short term lender of their rights and the protection which is afforded to them by these provisions of the CCA .
2 See example: Morrison & Robinson v Betterpace Ltd (t/a Log Book Loans) [2009] Unreported and Yates & Lorenzelli v Nemo Personal Finance and another [2010] Unreported, 14 May 2010,
4 Clause 76, page 41, line 25 at end insert the following new clause –
“Part 3 – Regulated Consumer Credit
Continuous Payment Authorities: debtor’s rights
(1) This Section applies where a debtor has granted to a creditor a continuous payment authority for payment of any debt arising under a regulated agreement.
(2) Prior to granting the continuous payment authority, a creditor must give the debtor a statement of the debtor’s rights in relation to the continuous payment authority.
(3) A debtor may at any time cancel or vary a continuous payment authority.
(4) A cancellation or variation of a continuous payment authority must be signed by the debtor and bear the date of the signature.
(4) A bank is obliged to comply with immediate effect to a cancellation or variation of a continuous payment authority signed by the debtor.
(5) A debtor must inform the creditor within 24 hours of signing the cancellation or variation that the continuous payment authority has been cancelled or varied.
(6) In this Section “continuous payment authority” means an instruction or mandate given by a debtor to a bank to pay a fixed or variable sum to a creditor.”
Effect
This new clause seeks to clarify the law on Continuous Payment Authorities.
Reason
Continuous Payment Authorities (CPAs) are sometimes known as “recurring payments” and are often used in the short term or payday loan market. They are set up by using a credit or debit card which allows a lender to withdraw funds from a
5 account. The amount of the payments can be varied, and often the borrower may not be aware that an increased payment or multiple payments in a relatively short period of time may be withdrawn by the lender.
The borrower has the right at any time to instruct his or her bank to cancel the CPA.
However, various media reports suggest that customers are generally not aware of their right to withdraw from CPA schemes3. Also, The Financial Conduct Authority reported in June 2013 that “…We have found that card issuers, such as banks and building societies, were not always cancelling continuous payments authorities when their customers asked them to...”
Consumer Focus research4 “…raised particular concerns about continuous payments to payday lenders set up on the accounts of people with debt problems…
cash-strapped consumers are having an even tougher time paying priority bills such as their rent, mortgage or heating costs due to some payday lenders "dipping" into their account.” “Businesses are using CPAs to take additional charges over and above the payment for products and services being subscribed to, e.g. fees for debt recovery…” Consumer Focus recommended that clear and accurate information be provided to CPA customers, both from banks and loans companies, particularly regarding the right to cancel.
In March 2013, the OFT published its report5 ‘Payday Lending-Compliance Review’
which found that “…Continuous payment authorities are poorly explained to consumers and their misuse is causing distress to a considerable minority of consumers, in some cases leaving them with insufficient funds to cover their most basic needs…”
In October 2013, following referral by the OFT, the Competition and Markets Authority (previously the Competition Commission) began its market investigation into the payday loan sector6. As part of the investigation, the CMA will consider CPA’s. The investigations final report is due to be published December 2014 – January 2015.
The UK Government has previously expressed their concerns regarding CPA’s.
During the Parliamentary passage of the Financial Services Act 2012, Lord Newby stated “abuse of the CPA is one of the most concerning practices of payday lenders”7. CPA’s were again debated during the passage of the Financial Services (Banking Reform) Act 2013.8
3 http://www.guardian.co.uk/money/2012/may/02/consumers-bad-advice-continuous-payments
4http://www.consumerfocus.org.uk/news/consumer-focus-research-shows-continuous-payment- authority-confusion
5 http://www.oft.gov.uk/shared_oft/Credit/oft1481.pdf
6 https://www.gov.uk/cma-cases/payday-lending-market-investigation
7 http://www.publications.parliament.uk/pa/ld201213/ldhansrd/text/121128-0002.htm
8 http://www.publications.parliament.uk/pa/ld201314/ldhansrd/text/131126-0003.htm
6 This amendment ensures that debtors are informed about their rights and that only the debtor may cancel or vary a CPA. Furthermore the debtor’s bank is obliged to comply with the debtor’s instructions.
