A consumer credit agreement is a contract under which a lender provides, or promises to provide, credit to an individual for personal use. Common examples include personal loans, credit cards, hire purchase agreements and some point-of-sale finance arrangements. The Consumer Credit Act 1974 regulates many such agreements in the United Kingdom, although exemptions and different rules apply depending on the parties, transaction and credit structure.
Harper James is a UK commercial law firm advising businesses on financial services regulation and the laws of England and Wales.
Before entering into a regulated agreement, the lender generally needs to provide prescribed pre-contract information in a durable form. This should explain matters such as the amount of credit, interest rate, repayment schedule, charges, consequences of missed payments and cancellation rights. The final agreement must contain required information and be properly executed. Missing or inaccurate information can affect enforcement rights and, in some cases, the enforceability of the agreement.
Businesses should identify the role they perform in the transaction. A lender, credit broker, supplier offering finance and debt purchaser may have different legal obligations. The business should also establish whether it requires Financial Conduct Authority authorisation, whether an appointed representative arrangement applies, and which communications are financial promotions.
A practical review should compare the agreement with the customer journey. Check how the customer receives pre-contract information, gives consent, receives a copy of the signed agreement and is told about arrears or termination. Terms covering interest, default charges, early repayment, repossession, data sharing and complaints should be clear and consistent with the product's operation.
The Consumer Credit Act also contains rules concerning notices, termination and enforcement. In addition, the Financial Conduct Authority's rules and the law on unfair terms and unfair relationships may apply. A business should retain evidence of the application, assessment, agreement, communications and payment history. Clear records support complaint handling and help identify whether a process needs correction.
Before launching or changing a consumer credit product, a business should:
The analysis is transaction-specific. A hire purchase agreement, revolving credit facility and deferred-payment arrangement do not necessarily have the same legal treatment, even where each allows a customer to pay over time.