LONG-STANDING S77A & ESIS TRANSITIONAL PROVISIONS EXPIRE

Changes to consumer credit documentation may be required as two key transitional provisions expire within the next year.

Enforceability: S77A CCA transitional provisions expire 30 September 2018

For the last decade, some credit agreements have relied on transitional provisions to ensure their enforceability. Section 77A of the Consumer Credit Act 1974 will take full effect from 1 October 2018 , following expiry of long-standing savings provisions.

S77A CCA imposes a requirement upon creditors under regulated fixed -sum agreements that last more than 12 months to provide annual statements to customers. Non-compliance may result in the debtor not being liable for interest or default payments in the period of non-compliance. Firms may be unable to enforce credit agreements relating to any non-compliant periods.

For regulated fixed-sum credit agreements entered into before 1 October 2008, r egulations 45-49 of the Consumer Credit (Information Requirements and Duration of Licences and Charges) Regulations 2007 allowed for transitional provisions. Over the last 10 years, some older credit agreements may not have disclosed items such as: the amount of credit provided under the agreement; annual rates of interest and relevant periods of application; date of execution or date of first movement; nor (minimum) duration of the credit agreement.

By 1 October 2018, lenders must now review annual statements for full compliance with s77A CCA to ensure their enforceability.

Full ESIS mortgage disclosure s from 22 March 2019

The full pre-contractual disclosure document – the European Standardised Information Sheet (ESIS) – will be mandatory for Mortgage Credit Directive regulated mortgage contracts from 22 March 2019.

An ESIS has been required for customers of MCD mortgage lenders and MCD mortgage credit intermediaries since 21 March 2016 under Article 14 of the MCD, and corresponding provisions of the FCA Handbook (MCOB 5A, MCOB 6A and MCOB 7B) . The ESIS provides an illustration of the mortgage contract and allows the customer to reflect on the document for a period of at least 7 days, compare the offer with competitors and make an informed decision. The ESIS template is available here.

During the 3-year transitional period, firms have been permitted to provide customers with an equivalent, non -standardised information sheet. Firms may adopt the standardised ESIS before expiry of the transitional period if they wish to do so.

Lenders must now take steps to ensure the use of the ESIS template, by themselves and any intermediaries, to make appropriate pre-contractual disclosures. The transitional period ends on 21 March 2019.