What is the Consumer Credit Act?
The Consumer Credit Act offers greater knowledge and protection for consumers. It was developed to help regulate purchases made via credit card, as well as loan agreements and hire agreements. With the act, a consumer has the legal right to a cooling off period. The Act was created in 1974 and amended in 2006, and it regulates consumer credit in the country alongside the Financial Services and Markets Act 2000, and European Union consumer credit law and its various regulations.
What does the consumer credit act and other regulations cover for a consumer?
- It ensures that consumers are provided with accurate information prior to entering any form of credit agreement
- It looks after all content and the form of credit agreements
- Ensures the method of calculating APR (Annual Percentage Rates of interest) is fair and transparent
- It looks after credit advertising
- Puts in place procedures to deal with the events of default, termination and early settlement of credit
- Provides additional protection for credit card purchases that have cost between £100 and £30,000 (Under Section 75 of the Consumer Credit Act)
A creditor has responsibility towards you as the consumer. This includes putting in place a stringent assessment process in order to assess the credit worthiness of each application for credit, or an application to increase credit on an existing financial product. This must include information obtained from you, the consumer, as well as information regarding your credit file, obtained from a credit reference agency.
As well as the information that must be assessed by the credit facility, they also have a responsibility to inform you of the exact nature of the credit agreement, the identity and address of the creditor, the type of credit, the amount of credit being offered and the credit limit available to that specific consumer. Alongside this a consumer must be provided with an exact duration and repayment dates of the credit agreement, the total amount payable, as well as all interest charges (including the rate, APR, and any applicable conditions). All of this information should be provided to you in a Pre-Contract Information document, which is a separate document to the credit agreement itself. Both parties must then sign the agreement, with a copy given to each party.
As well as the information prior to a credit agreement being signed by both parties consumers are protected with a cooling off period, 5-days, as well as a 14-day period in which to change your mind and cancel a credit agreement. At this point you have to repay the borrowed amount and any interest accrued in that time.
With the Consumer Credit Act and other regulatory bodies ensuring there is greater protection for consumers, we have in recent years started to see greater numbers of responsible lenders, especially in the payday loan model. Whereas in the past the process of a short-term loan may have caused bewilderment and potential greater debt for a borrower, these reputable payday loan lenders provide short-term financial assistance in a way that does not endanger the borrower further.