The Consumer Credit (Information Requirements and Duration of Licences and Charges) Regulations 2007 were laid before Parliament on 4 April 2007. This long-awaited Statutory Instrument, together with the Consumer Credit (Exempt Agreements) Order 2007, which was laid at the same time, is the final piece in the puzzle which is the Consumer Credit Act 2006.
One of the government’s expressed intentions in amending the existing Consumer Credit Act 1974 was to protect consumers and to create a more transparent credit market. The 2006 Act achieves this by inserting new sections into the 1974 Act. These impose statutory obligations upon creditors and owners to provide notices and statements to their credit and hire customers, some completely new and some amended versions of what we know today. The Regulations make provision about the form and content of these notices and statements.
Together, the 2006 Act and the Regulations oblige creditors for the first time to provide borrowers under fixed sum credit agreements with annual statements. Also, notices of arrears and default sums (not to be confused with default notices with which we are already familiar) are required to be sent for both fixed and running account credit agreements. And there’s much, much more.
Like the rules of any good puzzle, the requirements for complying with the Regulations are exacting and highly prescriptive and there’s a sting in the tale. If you comply and get it wrong in a material respect or if you fail to comply at all, the penalties are severe. Not only will you not be able to enforce your agreements until the error is corrected, you will also be prohibited from charging interest or default sums for the period of non-compliance. In this the first of a series of two briefing notes, we review the implications of the notification provisions which credit and hire businesses need to familiarise themselves with now. The implementation date is 1 October 2008, later than originally anticipated. However, although timescales may look generous, the systems changes that will be necessary in order to accommodate the Regulations’ requirements are very significant indeed. We encourage businesses to start the ball rolling now.
Requirements common to all Notices/Statements
The Regulations require that the notices/statements:
- Use plain, intelligible language;
- Are easily legible and of a colour readily distinguishable from the background; and
- Be no less prominent than any other information and wording included in the document apart from:
(a) The date;
(b) Trade names and names of the parties;
(d) Headings or an agreement reference number.
These issues of prominence need to be carefully considered because even inadvertent non-compliance could render your notices/statements ineffective. Thankfully, the Regulations do provide some clarification on this. Regulation 41 states that errors or omissions that do not affect the substance of the required information or form of wording, will not on their own cause the notice/statement concerned to breach the Regulations. Some comfort it seems, but in reality until there is some guidance or case law on this point the principle may be difficult to apply in practice. Applying the Regulations correctly in the first place is the only way to provide businesses with certainty.
In addition to these general requirements there are specific details which need to be included in each of the required notices/statements, which we consider below.
Requirements for periodic statements - fixed-sum credit agreements.
A new Section 77A in the 1974 Act requires lenders under regulated fixed sum credit agreements to give their borrowers a statement within a year, starting on the day the agreement is made, and thereafter at intervals of not more than one year. Statements must continue to be given until the credit is fully repaid or settled.
This obligation applies to existing as well as new agreements. For new agreements implementation is 1 October 2008. For agreements in existence on that date, transitional provisions require the first statement to be given within a year.
The creditor may not charge for issuing these statements. Points to note in relation to this new section include:
- Annual statements may not be sufficient. Businesses will need to check how their systems produce statements. Any delays during the first statement year, due to weekends/public holidays/system interruptions for example, could result in statements being given too late. The same applies to second and subsequent statements. Similarly, businesses who accelerate statements to avoid weekends and public holidays one year could be storing up problems for the next year unless their system is clever enough to remember that last year the statement went out early, most aren’t!
We believe that at some point the DTI, now DBERR, intends to address this anomaly for second and subsequent statements by Regulatory Reform Order. For the time being, businesses are encouraged to think carefully about whether, given the current drafting, they will always be able to get their statements out on time.
- The content of the statements are prescribed in detail by the Regulations and businesses should review these, but to summarise the statement must contain:
(a) Name, telephone number, postal address and any other relevant address of creditor;
(b) Information specific to the agreement, description of agreement, amount of credit, interest rates (expressed on a per annum basis);
(c) Date agreement executed or date of first movement on account;
(d) Duration or minimum duration;
(e) Opening balance;
(f) The amount and date of any payment made into the account during the statement period;
(g) The amount and date of any interest or other charges falling due during the statement period;
(h) The amount and date of any movement in the account (excluding items covered above) during the statement period; and
(i) The balance under the agreement at the end of the statement period.
(j) Prescribed statutory statements under the following headings:
- Settling Your Credit Agreement Early;
- Dispute Resolution;
- Paying Less Than The Agreed Sum.
- In addition to the above required statutory statements, there are additional notices applicable to:
(a) HP and conditional sale agreements; and
(b) For credit agreements made before 1 October 2008 which do not contain all of the above items of information (items shown in italics may be omitted until 30 September 2018), a statement telling customers this and that they are entitled to receive the missing information within 15 days if they ask for it.
- There are detailed provisions setting out how the information requirements should be applied to agreements which are the subject of aggregation agreements between a creditor and debtor. Businesses will need to review carefully these requirements.
Additional statements for running account credit agreements
The Regulations make changes to those existing regulations concerning running account credit agreement statements by requiring additional statutory statements on the following:
- The effect of only making the minimum payment,
- Failure to make the minimum payment; and
- The way in which payments made are allocated to the outstanding balance on the account.
For those of you who followed the consultation process, the good news is that the DTI in the end decided to dispense with its original proposal to require annual interest rates and the requirement for a warning statement in the event that a customer fails to make a required payment if the shortfall is less than £1.00.
There is considerable work to do to ensure that businesses can implement these information giving requirements by 1 October 2008. Businesses should be:
- Reviewing the legislation to assess which provisions will apply to their agreements;
- Reviewing the Regulations so as to draft the required statements/notices correctly; and
- Implementing systems changes to ensure that the requisite statements/notices can be served correctly.
All this will need planning - so start now. If we can assist in interpreting the statutory provisions and how they apply to your business or by drafting the appropriate statements/notices for you, please contact us. We have also provided clients with bespoke training sessions, tailored to their specific requirements. If this would be of interest to you, let us know.
In our next briefing note we will review the new notification requirements for arrears and default sums