Consumer Credit Act

The Consumer Credit Act regulates consumer credit and consumer hire agreements for amounts up to £25,000. Its protections apply to agreements between traders and individuals, sole traders, partnerships and unincorporated associations, but not agreements made between traders and corporate bodies such as limited companies.

The Act lays down rules covering:

• the form and content of agreements;
• credit advertising;
• the method of calculating the Annual Percentage Rate (APR) of the Total Charge for Credit;
• the procedures to be adopted in the event of default, termination, or early settlement;
• extortionate credit bargains.

The Act also requires that all traders who make regulated agreements obtain licences from the Office of Fair Trading. Credit brokers, debt advisors and others, may also require licences. 

Appeals can be made against decisions of the Office of Fair Trading (OFT) that a person is not fit to hold a consumer credit licence. Appeals under the Consumer Credit Act

Local trading standards departments and the Office of Fair Trading enforces the Act. The Office of Fair Trading also produces a series of booklets about the Act and its regulations. For further information contact local trading standards departments or the Office of Fair Trading.

The DTI has an ongoing programme aimed at improving consumer credit regulation.

Recent changes include:

• requiring the Annual Percentage Rate (APR) for low-start mortgages to reflect total charges throughout the life of the loan.

• requiring warnings such as "Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it" be shown in all pre-contractual information on mortgage offers.

Planned changes on which DTI expects to consult shortly include:

• making provisions on the early settlement of loans clearer and fairer to consumers.

•  simplifying credit advertisement regulations and making them more sharply focused on requiring informative and
truthful advertising.

• protecting consumers more effectively from extortionate interest rates.

• considering whether changes should be made to the Consumer Credit Act to facilitate loan transactions over the Internet.

European Directive on Consumer Credit

The Consumer Credit Act implements the European Directive on Consumer Credit. The European Commission have published proposals for modernising the Directive. 

The Commission's announcement says:

"New EU-wide rules for consumer credit will be expanded to modern forms of consumer credit today. Home loans remain outside the scope.

Borrowers will gain improved transparency on products (costs, terms and conditions) and can more easily compare offers on a cross-border basis. Lenders will gain improved opportunity to assess borrower risk, but in return they will be subject to "know thy client" obligations before granting any credit. Consumers will also have the right of withdrawal within 14 days, free of charge and without justification. 

Harmonised consumer credit rules throughout the Union will not only increase the protection of consumers across borders but also their confidence and thus strengthen the functioning and the stability of the consumer credit market in the EU."

We would welcome any comments on the proposal. We are in consultation with consumer and industry organisations and would encourage members of such organisations to feed into the consultation process through their representatives.

Please indicate if you would like to be kept up-to-date about negotiations on the Directive by responding to: nigel.creswick@dti.gsi.gov.uk

All comments should also be fed through this email address.

Proposal for a Directive of the European Parliament and of The Council on the harmonisation of the laws, regulations and administrative provisions of the Member States concerning credit for consumers.

Consumer Credit Act Review

In July 2001 the Minister for Consumers announced plans for a review of the Consumer Credit Act and published the consultation paper Tackling Loan Sharks - and More!

We will use this page to post news about the review (see below). If you would like to be kept informed of changes to this page click here to be informed of updates.

White Paper - Patricia Hewitt announces the publication of the White Paper "Fair, Clear and Competitive - The Consumer Credit Market in the 21st Century".

The White Paper (published December 8 2003) sets out the policies that the Government intends to pursue including measures to:

• strengthen the rules governing credit licenses, putting debt management companies and rogue moneylenders under closer scrutiny;

• give the Office of Fair Trading the power to fine moneylenders and conduct surprise raids on debt companies;

• moneylenders will have to provide standard information when advertising financial products so consumers can compare like-for-like and find the best deal. Small print will have to enlarged; and

• set out fairer rules for people who pay back loans early. Around 70 per cent of all personal loans are settled early but often under the weight of heavy charges.

White paper (148 pages - 2.6 Mb)

White Paper Consultation

The White Paper is accompanied by a consultation on the draft regulations detailing the changes proposed for consumer credit advertising, the form and content of credit agreements, the early settlement of credit agreements and facilitating the conclusion of credit agreements over the internet. Published 8 December 2003. Closing date 15 March 2004.

Consultation (116 pages) 

17 December 2003 - Research report on how consumers regard credit advertising. 

In 2002 the DTI commissioned a report on how consumers regard credit advertising. The research showed that the key considerations for consumers when taking up a credit product included:

• APR;
• monthly repayments;
• total repayable;
• access to credit;
• introductory rates;
• reputation of the lender.

Management Summary

17 December 2003 - Responses to earlier credit review consultations

(i) In December 2002 DTI launched a consultation on amending the Consumer Credit Act and its regulations, where necessary, to enable and facilitate the conclusion of electronic contracts.  The Electronic Directive 2000 requires member states to ensure that their law allows contracts to be concluded by electronic means. The Directive has been transposed, for the most part, by the Electronic Commerce (EC Directive) Regulations 2002.

Summary of responses to the electronic contracts consultation.

(ii) In January 2003, DTI published a consultation paper on reforming the consumer credit licensing regime. This was one of a series of consultation papers published as part of the review of the Consumer Credit Act 1974 and it was sent to a wide range of lenders, trade associations, consumer bodies, regulatory and Government bodies, and other interested parties. The consultation period ended on 30 April 2003.

Summary of responses to the credit licensing consultation.

(iii) In March 2003, DTI published a consultation paper on making the extortionate credit provisions within the Consumer Credit Act 1974 more effective. This was one of a series of consultation papers published as part of the review of the Consumer Credit Act, and was sent to a wide range of lenders, trade associations, consumer bodies, regulatory and Government bodies, and other interested parties. The consultation period ended on 6th June 2003

Summary of responses to the extortionate credit consultation.

17 December 2003 - Consultation on the provision of Alternative Dispute Resolution (ADR) for disputes arising under the Consumer Credit Act 1974.

This consultation paper sets out the options for alternatives to the courts in resolving consumer credit disputes. An alternative dispute resolution system for the whole of the consumer credit industry, which resolved disputes in a speedy, fair and inexpensive manner, would benefit both firms and consumers. For firms it would be cheaper than facing court action: for consumers it would mean that redress is obtainable quickly and inexpensively if things go wrong. Like the courts, the ADR system would be independent. 

ADR Consultation Paper.
Regulatory Impact Assessment.

December 05 2003 - Publication of Consumer Credit Awareness Poll. The findings of a new MORI poll, commissioned by the DTI, of more than 1,000 consumers reveal their attitudes and use of consumer credit, ahead of the publication of the Government's consumer credit White Paper.

Poll results (25 pages)
Associated tables (48 pages)

July 22 2003 - Minister announces decision on Business Lending

After discussion with lenders, trade associations and small business representatives, Consumer and Competition Minister Gerry Sutcliffe has decided that the regulation of all business lending above the current limit of £25,000 will be exempt from the Consumer Credit Act.

The Government has previously announced that the current upper financial limit of £25,000 would be removed so that all consumer borrowing will be regulated.

The Minister has decided that what protects consumers could hold back business and has therefore capped the regulation of business lending at the current level of £25,000.

Regulation for business lending below £25,000 will be restricted to sole traders, partnerships of up to and including 3 partners and other unincorporated bodies.

31 March 2003 - National Debtline Evaluation

The Money Advice Debtline pilot project (National Debtline) was launched in March 2002 to deliver free specialist debt advice and a debt repayment planning service to consumers in financial difficulty.

Funded by a partnership between Government and the credit industry, the pilot tested three forms of free debt advice provision:

• national access to telephone and electronic advice (Birmingham).
• local access to telephone and electronic advice (Fife).
• peripatetic local face-to-face advice (Cornwall).

The evaluation, which was carried out by Deloitte & Touche, assesses the extent to which the pilot met its aims in the following four broad areas:

Demand: did the pilot satisfy a customer need?
Operations: had the pilot been well run?
Finance: were its financial objectives met?
Policy: whether the pilot met the government aims?

The evaluation informs the work with funders to develop the new gateway for telephone advice, which is outlined in the White Paper published in December 2003 (see above).

National Debtline evaluation (85 pages). National Debtline case studies (web page).

March 2003 - Consultation on making the extortionate credit provisions within the Consumer Credit Act 1974 more effective. (Deadline for responses was 6 June 2003)

Consultation paper.

January 2003 - Consultation on the Licensing Regime under the Consumer Credit Act 1974 (Deadline for responses was 30 April 2003)

Consultation paper.

December 2002 - Consultation on enabling and facilitating the conclusion of credit and hire agreements electronically under the Consumer Credit Act 1974 (Deadline for responses was 28 March 2003)

Consultation paper.

August 2002 - Consultation Paper on the Early Settlement of Consumer Credit Agreements (deadline for responses was 22 November 2002).

Consultation on Early Settlement.
Summary of Responses.

August 2002 - Review of the Consumer Credit Act: Progress Report

This Report from the Minister outlines the work undertaken to bring the consumer credit laws up to date and appropriate for today’s modern credit market and to tackle the growing problem of overindebtedness.
Progress Report.

August 2002 - Report on the US Consumer Credit Market

As many aspects of the consumer credit industry in the UK follow trends in the US, it is considered important that any revision to the Act covers, as far as practical and possible, developments in the US that could well be exported to the UK in the next few years but which may require regulation under the Act.  In the circumstances the Department of Trade and Industry (DTI) is undertaking a checkpoint analysis of the consumer credit trends in the US, so that, if possible and appropriate, some ‘future-proofing’ of the Act can be undertaken.

This report summarizes the findings of the research undertaken by Edgar, Dunn and Company (EDC).
Report on US Consumer Credit.

March 2002 - Consultation Paper on the Financial Limit and Exempt Agreements of the Consumer Credit Act (deadline for responses was 21 June 2002).

Consultation on Financial Limits.
Summary of responses.

February 2002 - Summary of Responses on the Consultation Paper on Modernising the Consumer Credit Act 

Ministerial announcement.
Summary of responses.

July 2001 - Consultation Paper on Modernising the Consumer Credit Act

Ministerial announcement.
Consultation Paper Tackling Loan Sharks & more.

June 1999 - Report on Extortionate Credit in the UK

Full Report (web page).

Note: Material on the Task Force on Tackling Overindebtedness has been moved to its own page. 

DTI Contact

The DTI cannot give advice on general consumer complaints and enquiries. These should be taken to local Citizens Advice, local Trading Standards Departments or the Office of Fair Trading.