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Pre-contract information

The Consumer Credit Act 1974 lays down rules requiring information to be given to borrowers or hirers before entry into a consumer credit or hire agreement.

New regulations requiring information to be given to borrowers before entry into a credit agreement came fully into force on 1 February 2011, implementing provisions of the Consumer Credit Directive (CCD).

Consumer Credit (Disclosure of Information) Regulations 2010

The 2010 regulations apply to unsecured credit including loans, hire-purchase, credit cards and overdrafts. They may also apply to some secured credit.

The regulations require certain information to be disclosed to the borrower 'in good time' before they enter into a credit agreement.  In most cases this must be by means of a standard form, the Pre-contract Credit Information (PCI) form, as annexed to the regulations. The format and ordering of the form are prescribed. The borrower must be able to take the PCI away, so that he can consider and shop around.

There are special rules for telephone and distance contracts, and for overdrafts and pawnbroking.

If the requirements are not followed, the agreement will be unenforceable without a court order.

The 2010 regulations can be found online here.

A summary of the 2010 regulations is in chapter 9 of the BIS guidance on the implementing regulations.

The 2004 regulations

Pre-contract disclosure requirements for most secured loans are set out in the Consumer Credit (Disclosure of Information) Regulations 2004 or - if the contract is concluded at a distance (for example, by telephone or internet) - the Financial Services (Distance Marketing) Regulations 2004.

Consumer hire agreements are subject to The Consumer Protection (Distance Selling) Regulations 2000.

Adequate explanations

New section 55A of the Consumer Credit Act requires creditors (or intermediaries acting on their behalf) to provide an adequate explanation to the borrower pre-contract. This must enable the borrower to assess whether the agreement is suited to his needs and financial situation.  In particular, the explanation must cover:

  • any features of the credit which may make it unsuitable for particular types of use
  • how much the borrower will pay periodically and in total
  • features which may have a significant adverse effect in a way that the borrower is unlikely to foresee
  • the principal consequences of failure to make repayments, including legal proceedings and repossession where applicable
  • the right of withdrawal and how/when this can be exercised.

In addition, the borrower must be advised to consider the PCI and that he can take it away and can ask questions.  He must also be advised how to ask the creditor for further information or explanation.  The explanation and advice must be given orally in certain circumstances.

Section 55A was introduced via the Consumer Credit (EU Directive) Regulations 2010.

See also chapter 8 of the BIS guidance (pdf) and chapter 3 of the OFT's Irresponsible Lending guidance (pdf). The Irresponsible Lending guidance also covers related issues of creditworthiness and affordability.




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