Overview – The Consumer Credit Act (CCA) 1974
The Consumer Credit Act (CCA) 1974 requires that businesses who offer goods or services on credit contract hire or leasing, or vehicle related finance to consumers to have a suitable Consumer Credit Licence. The Consumer Credit Licensing regime was administered by the Office of Fair Trading.
The FCA replaced the Office of Fair Trading (OFT) as the regulator of Consumer Credit in April 2014.
The Consumer Credit Act (CCA) was introduced in 1974, amended in 2006-2010 to include additional consumer protection measures.
The UK Government created the CCA to regulate the credit industries, to ensure adequate protection for private consumers, who use credit to buy goods and services on hire purchase or credit card in the UK; for example, buying a vehicle on hire purchase or buying clothes with a credit card.
The Act places requirements on lenders to provide greater transparency in how credit is sold to consumers and to ensure that there is a fair balance between lenders and consumers that is applicable to all consumer related credit agreements.
For consumer transparency of the Annual Percentage Rate (APR), the CCA ruling is that the APR must be included in credit agreements and take into account all costs including other charges (such as Option to Purchase and Documentation Fees) which affect the cost of borrowing. A typical APR must be included in most credit advertisements.
What is a regulated agreement?
A regulated agreement is a credit agreement that relates to consumers and is regulated by the Consumer Credit Act 1974.
If the agreement is regulated, then the customer/borrower enjoys the full protection of the CCA.
A regulated consumer must be made aware of his/her obligations and rights, and agreements should make clear all contractual terms, in particular: repayments, the annual percentage rate, he protection and remedies available, relevant to the agreement and finance.
Who the Consumer Credit Act gives protection to?
- Private individuals
- Sole traders
- Partnerships of up to three partners
Who the Consumer Credit does not protect?
- Limited companies
- Local authorities/li>
- Partnerships of four or more partners
Agreement cancellation rights
Agreements signed on trade premises (such as a dealerships) are non-cancellable in all but very extreme circumstances.
Any agreement that is unregulated
Agreements signed off trade premises (such as by post or electronically) are subject to a period of a 14-day cooling off period; within that time, you may cancel the agreement. The cooling off period relates to the terms of the agreement, and vehicle or goods may only be supplied after the 14-day cooling off period has been completed.
Any customer has a statutory right to complete payments under an agreement early. When this happens, the customer is entitled to a rebate of the outstanding interest if the agreement is regulated. Finance companies usually apply rule 78, which is a term used in lending that refers to a method of yearly interest calculation. Finance companies will supply early settlement figures within 7 days of a written request.
Voluntary termination right – Regulated agreement (the Halves Rule)
The CCA allows the consumer to terminate the agreement before the end of the contractual term. If the consumer elects to voluntary terminate, he/she complies with the following:
Pay or have paid at least 50% of the total amount owed to the finance company. This comprises everything the customer would have paid if the agreement ran its full course including the deposit, amount borrowed, interest and all fees and charges.
Bring up to date any arrears that are owed to the finance company, even if this results in more than the 50% being paid.
Return the goods/vehicle in a reasonable condition for its age and mileage.
Inform the finance company to explain the option they wish to take, provided the consumer has paid at least half the total amount payable and taken reasonable care of the goods, then the goods can be returned to the finance company with no further liability.
Voluntary termination rights to not apply to Hire or Personal contract hire agreements.