On 14 April the Department for Business Enterprise and Regulatory Reform (BERR) published a consultation seeking comments on its proposals for implementing the Consumer Credit Directive (CCD) into UK law. Any business currently covered by, or exempt from, UK consumer credit legislation needs to assess what effect the changes will have on it.

What new requirements does the CCD impose into UK consumer credit law?

The CCD contains some requirements which are substantially new to UK law. These include:  

  • a duty on the lender to provide adequate explanations about the credit on offer to the consumer;  
  • an obligation on the lender to check creditworthiness before offering or increasing credit; 
  • requirements concerning credit reference databases;  
  • a right for consumers to withdraw from a credit agreement within 14 days without giving any reason;  
  • requirements to inform consumers when debts are sold on; and  
  • requirements for credit intermediaries to disclose fees and links to creditors.  

Are any agreements regulated under the Consumer Credit Act (CCA) outside the scope of the CCD?

In some respects, the CCA is wider than the CCD. An analysis of the CCD’s scope suggests that the following kind of agreements regulated under the CCA are not covered by the CCD:  

  • lending to small businesses, partnerships and unincorporated bodies;
  • loans below €200;
  • loans above €75,000;  
  • second charge mortgages;  
  • hire purchase agreements (but it would appear that conditional sale agreements are within scope);  
  • credit with no interest or other charges and repayable within three months with no interest and only insignificant charges;  
  • pawnbroking; and  
  • consumer hire agreements.  

What approach will be taken to “out-of-scope” agreements?

BERR will apply a case-by-case approach to whether or not to apply specific provisions within the CCD to out-of-scope agreements.  

Where it would be complex to apply the changes the CCD requires to some agreements while leaving others outside the scope subject to existing UK rules, BERR wants to give lenders a choice to either comply with the existing UK requirements or to comply with the new requirments of the CDD.

What about business lending (up to £25,000)?

Although the CCD does not cover any business lending, BERR proposes to apply the amending provisions of the CCD to business lending covered by the CCA. However, the following CCD requirements would not apply to this business lending:  

  • advertising requirements (not currently covered by UK legislation);  
  • mandatory use of the Standard European Consumer Credit Information (SECCI) and mandatory compliance with CCD contractual information requirements (although pre-contractual and contractual information would still have to be provided);  
  • the requirement to provide amortisation tables on demand.  

What about loans above €75,000?

BERR proposes that loans covered by the CCA and above the CCA threshold should be subject to the CCD’s requirement. However, except where a loan is for consolidation purposes, the following provisions of the CCD would not apply to such loans:

  • mandatory use of the SECCI and mandatory compliance with CCD contractual information requirements (although pre-contractual and contractual information would still have to be provided);  
  • the right of withdrawal;  
  • the requirement to provide amortisation tables on demand.  

What is SECCI?

SECCI is the standard form disclosure. The European Commission has tried to make this mandatory with minimal scope for change, and this would involve change to UK legislation. BERR however does not find the language consumer-friendly and is exploring whether it can make some changes to what the CCD stipulates.

What about existing UK exemptions?

Some existing UK exemptions are affected by the CCD and will need amendment, for example the existing derogation for credit which has to be repaid within 12 months by not more than four instalments. Under the CCD, this exemption should now apply only to credit agreements where the credit is granted free of interest and without any other charges and where the credit has to be repaid within a year. Where an existing UK exemption is affected by the CCD and requires amendment BERR plans to apply the change to all CCA regulated agreements qualifying for the exemption, and not just to agreements falling within the scope of the CCD.  

What is happening to the High Net Worth exemption?

The CCD does not allow the UK to apply the exemption to loans below €75,000. BERR intends to continue to apply it for loans above the threshold.  

What else does the consultation cover?

The consultation is wide. It explains all relevant provisions of the CCD and BERR’s reaction to them. Where BERR has an option over how or whether to implement a CCD requirement, it explains the reasons for its preferred option. The paper is 120 pages long with nearly 70 questions.  

When does the consultation close?

BERR has shortened the usual 12-week consultation period and needs comments after only eight weeks, by 10 June, so it can make the necessary laws as soon as possible. It would be keen for businesses to comply with the new laws before June 2010 if possible.