The Consumer Credit Directive 2008/48/EC (“the Directive”) and the Consumer Credit (EU Directive) Regulations 2010 introduce new rights and obligations. The Department for Business, Innovation and Skills has decided that there will be a transitional period and any new agreements entered into after 31 January 2011 must comply with the new requirements.
The key changes are as follows.
- Adequate explanations. A duty for lenders to provide adequate explanations to consumers about the credit on offer to enable them to decide whether it is suited to their needs and circumstances. (Regulation 3 and 4 of the Directive).
- Assessment of creditworthiness. An obligation for lenders to assess the creditworthiness of consumers before concluding a credit agreement or increasing the amount of credit available under an existing agreement. Lenders can decide how to assess creditworthiness, but are required to base their assessment on information obtained from the consumer, where appropriate and from a credit reference agency, where this is necessary. (Regulation 5 of the Directive).
- Refusal of credit. If an application is refused on the basis of information from a credit reference agency, the lender must inform the creditor of this when it declines the credit. (Regulation 40 of the Directive).
- Right to withdraw. The consumer has the right to withdraw from a credit agreement within 14 days without giving any reason. This replaces the current more limited right to cancel some types of agreements in certain circumstances. (Regulation 13 of the Directive).
- Assignments of debts. If a debt is assigned, the consumer must be informed of this by either the lender who buys the debt or the lender who sold the debt. (Regulation 36 of the Directive).
- Credit intermediary links. Credit intermediaries must disclose their links to lenders and disclose and agree fees for their services with the consumer. (Regulation 41 of the Directive).
- Right to repay early. The consumer has the right to repay an agreement early in part and to receive a reduction in the total cost of the agreement as a result. The existing legal framework for full early repayment has been retained and extended to cover partial early repayment. (Regulation 29-34, 59-62 and 77-84 of the Directive).
- Right to terminate. The consumer has the right to terminate an open-end credit agreement at any time unless the parties have agreed that a period of notice not exceeding one month should be given. The lender can also terminate subject to given the consumer at least two months’ written notice. The lender can also terminate or suspend the consumer’s right to draw down an open-end credit agreement provided they give objectively justified reasons for doing so. (Regulation 37-38 of the Directive).
The Directive also amends or extends existing requirements:
- Advertisements. Advertisements that contain specific information about the cost of the credit need to provide a representative example of a credit offer. The Consumer Credit (Advertisement) Regulations 2010 will dispense with the typical APR approach.
- Pre-contractual information. Consumers must be given pre-contractual information in writing according to a specific format set out in the Directive. This information is set out in the Consumer Credit (Disclosure of Information) Regulations 2010.
- Contractual information. Other contractual information required is set out in the Consumer Credit (Agreements) Regulation 2010.
- Unsecured overdrafts. Non-business unsecured overdrafts will be subject to the requirements for both pre-contractual and contractual information although an overdraft can be arranged urgently without prior written information. Where a current account allows the account holder to overdraw without a pre-arranged overdraft, information about the charges must be included in the agreement. (Regulation 19 of the Directive).
- Obligation of the creditor in respect of goods. Where a credit agreement is used to purchase goods, the consumer can pursue the creditor for a remedy. The value of the goods must be at least £30,000, the credit agreement must be for £60,260 or less and the consumer must have tried to obtain satisfaction from the supplier first. This supplements s75 of the Consumer Credit Act where the cash price of goods is not less than £100 and not more than £30,000. (Regulation 25 of the Directive).
- The total charge for credit and the APR. The total charge for credit and the APR must be calculated in accordance with a specified formula. The formula is different to the one which already applies in the UK , but the result it produces is the same and the assumptions are broadly similar. (Total Charge for Credit Regulations 2010).
- Variation of interest rate. Where an agreement allows for variation of an interest rate, notice of variation must be provided to the consumer before the change takes effect. This is similar to the current requirements.