• INTRODUCTION AND SUMMARY
• CONSULTATION ON A REVIEW OF THE CONSUMER CREDIT ACT
• REGULATORY IMPACT ASSESSMENT
• WHO TO CONSULT ABOUT THIS CONSULTATION
• Annex – List of consultees approached

1. INTRODUCTION AND SUMMARY

 

PURPOSE OF CONSULTATION

1.1 This consultation seeks your views on proposals to review the Consumer Credit Act, the initial subjects to be covered and the timing of this work.

1.2 There are five main drivers that have led us to undertake a review of the Consumer Credit Act (CCA) now:
implementing the Government’s manifesto commitment to tackle loan sharks

1.3 In addition, the CCA is nearly 30 years old, and although some piecemeal amendments have been undertaken previously we now intend to undertake a major review to ensure it remains relevant to the modern consumer credit market and maintains appropriate consumer protection measures.

1.4 In carrying out this review our key objectives will be to develop a new consumer credit regime that:

1.5 While the Act has in many respects stood the test of time and continues to provide appropriate protections, we have set out in this consultation paper what we believe are the priority issues where changes are now necessary. These issues are:

changes to the licensing regime to target enforcement on keeping loan sharks out of the market making the extortionate credit provisions more effective changes to the CCA financial limit and categories of exempt agreements to increase consumer protection by bringing more credit agreements within the regulatory regime enabling consumers to conclude credit agreements on-line simplifying the Advertising regulations amending the early settlement regulations to give consumers a fairer deal recommendations by the Task Force on tackling overindebtedness

Questions:

1.6 We want your views on:

 

Are the issues we propose the ones you want to see tackled? Are there are other issues that you would like to see covered by a review of the CCA? For example have we missed areas where the Act inhibits competition in the provision of credit, stifles innovation, or where consumer protection needs to be enhanced? What are the estimated compliance costs and benefits of each proposal in this paper

RESPONSES

1.7 You can respond to this consultation by emailing us at keith.evans@dti.gsi.gov.uk or by writing to Keith Evans, Consumer Affairs Directorate, Room 407, Department of Trade & Industry, 1 Victoria Street, London SW1H 0ET. The deadline for responses is 3 October 2001.

1.8 The consultation period for this paper is slightly shorter than the norm for Government consultations. This is to permit DTI to press ahead and issue consultation papers on the substantive issues under the review from this Autumn onwards. We aim to publish a summary of the responses to this consultation and details of how we will take the review forward by November 2001.

1.9 Your response to this consultation document may be made publicly available in whole or in part at the Department’s discretion. If you do not wish all or part of your response (including your identity) to be made public, you must state in the response which parts you wish us to keep confidential. Where confidentiality is not requested, responses may be made available to any enquirer, including enquirers outside the UK, or published by any means, including on the internet.

CONSULTEES

1.10 We are sending this document to the consultees listed in the annex. It is also available by request from Peter Jones (tel no: 020 7215 3818) or by email to Peter.D.Jones@dti.gsi.gov.uk. Please let us know if you think others would be interested in this consultation.

2. CONSULTATION ON A REVIEW OF THE CONSUMER CREDIT ACT

 

2.1 The time is right for undertaking a review of the CCA. There is a desire for change from both business and consumers, and a real opportunity for change through a number of developments already taking place in the credit market.

2.2 The review clearly also needs to address examples of

consumer detriment, such as lenders who fail to make sure that borrowers have the ability to meet repayments on loans. For example, a retired consumer whose only income was mean-tested benefits had total outstanding debts of £34,000 spread over 11 credit card agreements.

2.3 The Government’s manifesto contained a commitment to tackle loan sharks and some preparatory work on this has already been undertaken. We commissioned research in 1999 into the effectiveness of the extortionate credit bargain provisions of the Act, and carried out an internal review of the consumer credit licensing regime. In addition, other work has been undertaken on issues that form our priorities for a review.

2.4 The European Commission published in June its proposals for a revised Consumer Credit Directive, and some of the areas covered are the same ones we propose covering; such as early settlement of loans, regulation of lenders and intermediaries, greater transparency in credit agreements, improved data sharing amongst lenders and greater use of positive and negative data when assessing a potential borrower’s ability to repay.

2.5 The review of the Consumer Credit Directive is expected to be a longer process than our CCA review and so we will press ahead with those issues that will not be directly affected by the Commission’s proposals. However, on some issues, such as joint and several liability (Section 75 of the CCA), we need to await the Commission’s proposals in a revised directive before taking any action on the CCA.

2.6 With the FSA commencing mortgage regulation in summer ’02 we need to ensure that consumer borrowing currently falling outside CCA and FSA regulation is appropriately protected. The FSA will regulate 1^st charge mortgages and unless we change the CCA, 2^nd charge mortgages above £25,000 will not be regulated.

2.7 Finally, the Task Force report on tackling overindebtedness contains a number of practical solutions for tackling overindebtedness and proposes working groups for taking forward detailed work on the recommendations.

2.8 The priority issues for the review, on which we propose to consult separately, are:

Changes to the licensing regime:

2.9 Lenders require a consumer credit licence to carry out most types of lending up to £25,000. The current licensing regime has attracted some criticism from lenders and consumer groups for the ease with which licences can be obtained and concerns over a perceived lack of enforcement action against rogue traders. The Act does not provide the OFT with a wide range of weaponry to tackle rogues, confining it primarily to the revocation of a licence. Strengthening the licensing regime and giving the OFT a range of enforcement powers, such as fines etc. would be a significant step in tackling some of the ‘grey market’ lending practices.

2.10 From Autumn 2001, we will be consulting on:

Extortionate credit:

2.11 The manifesto contained a commitment to tackle loan sharks. The CCA provides for the court, at a debtor’s request, to consider whether an agreement is extortionate, and if so change the terms so they are fair and reasonable. The Office of Fair Trading in its reports on this issue has identified that the requirements in the CCA that a credit bargain is extortionate if payments are ‘grossly exorbitant’ may be too high a hurdle for cases coming to court, and should be lowered. The research that we commissioned on extortionate credit identified that permitting courts to initiate examination of whether an agreement was extortionate would strengthen protection for vulnerable consumers. However, it is unlikely that such an amendment to the Act, plus an alteration of the definition, would on their own result in a significant clampdown on loan sharks. We would need to take this action in conjunction with other proposals in this paper on early settlement regulations and improvements to the licensing regime.

2.12 from Autumn 2001, we will be consulting on:

Changes to the CCA financial limit:

2.13 Currently the CCA covers most credit agreements up to £25,000 and lays down rules for the protection of consumers, such as the form and content of the agreement, the method of calculating the Annual Percentage Rate, and procedures in the event of default, termination or early settlement. With the FSA commencing regulation of 1^st charge mortgages in summer ’02 there will be a substantial wedge of consumer borrowing (loans over £25,000 and 2^nd charge mortgages) not regulated unless the financial limit is increased. We will need to consider whether any increase should continue to include business lending – the CCA covers loans to sole traders, partnerships and unincorporated businesses as well as consumers.

2.14 From Winter 2001, we will be consulting on:

Section 16 - Exempt agreements:

2.15 Some credit agreements, in particular mortgage loans, are exempt from the Act. While the FSA will regulate most mortgages there will still be some that are regulated neither by the FSA nor under the CCA. We need to consider whether it is appropriate to maintain these exemptions or bring nearly all mortgages under either the FSA or CCA regulation.

2.16 From Winter 2001, we will be consulting on:

Enabling consumers to conclude credit agreements on-line:

2.17 The CCA currently requires all credit agreements to be in writing and signed by both the lender and borrower. This is a consumer protection measure to ensure consumers have the opportunity to read the terms and conditions of the agreement before signing it. In addition, a number of actions that can arise during the lifetime of an agreement must be undertaken in writing, such as default notices. We need to consult on how far we should roll back the ‘in writing’ requirements to facilitate electronic loan transactions, while ensuring appropriate consumer protection measures are maintained. Finally, we will need to ensure that any proposals are in line with the UK’s implementation of the E-Commerce directive.

2.18 From Autumn 2001, we will be consulting on:

Amendments to the Early Settlement Regulations:

2.19 Consumers have a right to settle a credit agreement early and many lenders use a formula, set out in regulations made under the CCA, called the ‘Rule of 78’, for determining the settlement figure. This method tends to favour the lender and although the bias is not significant for some loans, for those of a high value and long term nature it imposes high penalties on the consumer.

2.20 We will be consulting on:

Amendments to the Advertising regulations:

2.21 It is recognised that these regulations are long overdue for reform. The FSA is also making changes to the mortgage regime. We need to ensure that the CCA regulations reflect today’s advertising climate while also ensuring consistency with FSA rules. The FSA is currently consulting on its detailed mortgage rules, including those for mortgage advertisements and, although in some respects these will be similar to the CCA rules, the FSA will be taking a different approach on some issues, such as the presentation of the APR. Lenders will be advertising FSA and OFT regulated products together and consistency in the advertising rules is essential. Currently the CCA rules are complex and cumbersome, resulting in misinterpretation by both lenders and Trading Standards Officers (TSOs). We want to create a regime that simplifies the advertising rules and focuses on the essential information that lenders want to get across and that consumers need.

2.22 From Autumn 2001, we will be consulting further on:

Task Force recommendations:

2.23 The Task Force set up in October ’00 by the then Consumer Affairs Minister, Dr Howells, submitted its report in April. It focused on identifying practical ways of achieving more responsible lending and borrowing. Its recommendations propose greater transparency in the credit transaction, as well as encouraging lenders to share and make use of both positive and negative data when assessing an application for credit. The Task Force report has now been published and in taking forward its recommendations we propose to:

3. REGULATORY IMPACT ASSESSMENT

 

3.1 It is inappropriate to make a Regulatory Impact Assessment on this consultation, which solely seeks views on areas for a review of the Consumer Credit Act and on a proposed timetable. However, in order to help us evaluate any compliance costs and estimated benefits from the areas to be covered in the review, it would be helpful to gain some initial indications on our outline proposals.

3.2 If some costs and benefits cannot be quantified but can be identified, please list them and give an indication of the importance you attach to them. You should identify and quantify recurring and non-recurring costs and benefits separately.

 

4. WHO TO CONTACT ABOUT THIS CONSULTATION

 

RESPONSES TO THIS CONSULTATION should be sent by email to keith.evans@dti.gsi.gov.uk or by writing to Keith Evans, Consumer Affairs Directorate, Room 407, Department of Trade & Industry, 1 Victoria Street, London SW1H 0ET. The deadline for responses is 3 October 2001.

HELP WITH QUERIES. If you would like help with queries or further information about this consultation please contact Peter Jones (tel no: 020 7215 3818) or email Peter.D.Jones@dti.gsi.gov.uk.

OTHER COMMENTS OR COMPLAINTS. If you wish to comment on the conduct of this consultation or make a complaint about the way this consultation has been conducted, please write to Mr A Dobbie, DTI consultation coordinator, Room 550, 1 Victoria Street, London SW1H 0ET or telephone him on 020 7215 6509 or email andrew.dobbie@dti.gsi.gov.uk.

Annex

 

List of consultees approached:

CHARITABLE BODIES

Age Concern
Help The Aged
National Council for Voluntary Organisations

CONSUMER ORGANISATIONS

Birmingham Settlement Money Advice Services
Consumers Association
Consumers in Europe Group
Federation of Information Advice Centres
General Consumer Council for Northern Ireland
Institute of Consumer Affairs
International Consumer Policy Bureau
Money Advice Association
Money Advice Scotland
Money Advice Trust
National Association of Bank & Insurance Customers
National Association of Citizens Advice Bureaux
National Association of Citizens Advice Bureaux (North Region)
National Consumer Council
National Federation of Consumer Groups
Scottish Association of Citizens Advice Bureaux
Scottish Consumer Council
Welsh Consumer Council

CREDIT AND HIRE INDUSTRY ORGANISATIONS

Association for Payment & Clearing Services
British Bankers Association
British Cheque Cashers Association
British Vehicle Rental & Leasing Association
Building Societies Association
Construction Plant Hire Association
Consumer Credit Association
Consumer Credit Trade Association
Corporation of Finance Brokers Limited
Council of Mortgage Lenders
Credit Card Research Group
Credit Industry Fraud Avoidance Systems
Credit Services Association
Finance and Leasing Association
Hire Association Europe
Institute of Credit Management
The National Consumer Credit Federation
National Pawnbrokers Association

 

CREDIT REFERENCE AGENCIES

Credit Data and Marketing Services
Dun and Bradstreet Limited
Equifax Limited
Experian Limited

EUROPEAN COMMISSION/GOVERNMENT

Bank of England
Building Societies Commission
Cabinet Office
Charity Commission
Commission for Racial Equality
Department of Economic Development (Northern Ireland)
DTI Competitiveness Unit
DTI Small and Medium Enterprise Policy Directorate
Equal Opportunities Commission
European Commission
Lord Chancellor's Department
The National Assembly for Wales
Office of Fair Trading
The Office of the Information Commissioner
Scotland Office
Scottish Executive
HM Treasury
UKREP
Wales Office

JOURNALS

Consumer Law Today
Trading Standards Review

LEGAL PROFESSION AND SIMILAR BODIES

Association of District Judges
Faculty of Advocates
The General Council of the Bar
Law Centres Federation
Law Commission
The Law Society
The Law Society of Northern Ireland
The Law Society of Scotland
Scottish Law Commission
Sheriffs Association
Society of Public Teachers At Law

LOCAL AUTHORITIES

Birmingham City Council
Essex County Council
Glasgow City Council
Hertfordshire County Council
Kent County Council
Surrey County Council

LOCAL AUTHORITY ASSOCIATIONS

Association of County Councils
Association of District Councils
Association of Local Authorities in Northern Ireland
Association of London Authorities
Association of Metropolitan Authorities
Convention of Scottish Local Authorities
Local Government Association
London Boroughs Association
Welsh Local Government Association

OMBUDSMEN

The Office of the Banking Ombudsman
The Office of the Building Societies Ombudsman
The Office of the Investment Ombudsman
The Ombudsman for Estate Agents
The Personal Investment Authority Ombudsman Bureau

ORGANISATIONS REPRESENTING SMALL FIRMS

Alliance of Independent Retailers and Businesses
Association of Independent Businesses
Federation of Small Businesses
The Forum of Private Business
The Independent Food Retailers Confederation
London Personal Finance Association
The Union of Independent Companies

OTHER BODIES, BUSINESSES OR INDIVIDUALS

Abbey National PLC
Anthony Sharp Associates
Berwin Leighton Paisner
Birmingham Midshires Building Society
BOC Limited
Cameron McKenna
Campaign for Plain English
Peter Cartwright
Clifford Chance
Cornhill Insurance PLC
Denton Wilde Sapte
Paul Dobson
Dundas & Wilson
Professor Sir Roy Goode
Geraint Howells
igroup Limited
JCB Finance Limited
Kensington Mortgage Company
Kent Reliance Building Society
Key Business Finance Corporation PLC
Lester Aldridge
Lloyds of London
Eva Lomnicka
Professor Macleod
Mercedes Benz Finance Limited
Mortgagecheck
Norwich Union Group Legal
Malcolm Padgett
Palmer Hart
Mr John Patrick
Clifford Payton
Personal Finance Research Centre
Politics International Limited
Premier Writers
Mr John Purcell
Renault UK Limited
RGMR
Ross & Co
S & U PLC
Salans Hertzfeld & Heilbronn HRK
Sonnenscheins
John Stephens
Swift Advances PLC
Time Retail Finance
Christian Twigg-Flesner
Mr Edward Vaizey
Virgin Management Limited
W & J Burness
Mr A I Warwood
Yorkshire Building Society

OTHER ORGANISATIONS OR BODIES REPRESENTING BUSINESS

The Association of British Chambers of Commerce
Association of British Insurers
British Insurance and Investment Brokers Association
British Retail Consortium
Confederation of British Industry
Direct Marketing Association
House Builders Federation
Institute of Directors
ISBA - the Voice of British Advertisers
The Institute of Management
The Mail Order Traders Association
The Radio Advertising Bureau
Retail Motor Industry Federation
Scottish Grocers Federation
Scottish Motor Trade Association
Society of Motor Manufacturers and Traders Limited

REGULATORY OR SUPERVISORY BODIES

Advertising Standards Authority
Broadcast Advertising Clearance Centre
Direct Mail Services Standards Board
Finance Industry Standards Association
Financial Services Authority
Independent Television Commission
Office for the Regulation of Electricity and Gas (Northern Ireland)
Office of Gas and Electricity Markets
Personal Investment Authority
Radio Advertising Clearance Centre
Radio Authority

TRADING STANDARDS

Institute of Trading Standards
Local Authorities Co-ordinating Body on Food and Trading Standards

1 Overindebtedness - Task Force Report (131 Kb)