The Consumer Credit Act 1974 enables borrowers to challenge unfair credit agreements in court and obtain redress, if the overall relationship is unfair to the borrower.
This is in addition to an enhanced ability for consumers to take disputes to the Financial Ombudsman Service (FOS).
The provisions were introduced by the Consumer Credit Act 2006. They applied to new agreements from 6 April 2007, and to pre-existing agreements from 6 April 2008.
Agreements completed before the new provisions took effect remain subject to the previous extortionate credit bargains provisions.
The 2006 Act also enhanced the right to apply for a time order, which is a court procedure that can give borrowers more time to repay a debt.
Read more about this on the OFTwebsite-Office of Fair Trading
The Consumer Credit Act 1974 requires certain credit and hire arrangements to be set out in a particular way and to contain certain information.
Exempt agreements
The Consumer Credit Act 1974 regulates most consumer credit and consumer hire agreements with individuals - which is defined as including sole traders and partnerships of two or three partners.
Until 6 April 2008, agreements were excluded from regulation if the amount of credit or hire exceeded £25,000.
However, this financial limit was removed for all new credit and hire agreements by the Consumer Credit Act 2006.
Pre-existing agreements above £25,000 remain outside CCA regulation.
There are a number of exemptions from the 1974 Act.
These are principally set out in section 16 and the Consumer Credit (Exempt Agreements) Order 1989 as amended. In particular, there are exemptions for:
- First charge mortgages regulated by the Financial Services Authority
- Some second charge mortgages, depending upon the nature of the agreement and the identity of the lender
- Agreements for goods or services where the consumer has to repay the credit within one year in four payments or less
- Charge cards and similar agreements where the consumer has to repay the outstanding balance in full at the end of each period
- Credit union agreements where the APR does not exceed 26.9 per cent
- Credit agreements offered to a limited group of borrowers where the APR does not exceed a specified 'low cost' rate (set by reference to average base rates)
- Certain agreements relating to overseas finance.
The 2006 Act introduces two new categories of exempt agreement:
- Lending to high net worth individuals, with net income exceeding £150,000 or net assets exceeding £500,000 and supporting documentation.
- Business lending over £25,000, where the loan is wholly or predominantly for business purposes (business lending up to £25,000 remains regulated).
