Stakeholder Notice April 2007
1. This note provides an update on arrangements to implement the Consumer Credit Act 2006. It relates specifically to: the making of Statutory Instruments (SIs) covering exemptions, post contract information and licensing; extending the scope of the Financial Ombudsman Service (FOS) to all consumer credit licence holders and establishing the Unfair Relationships Test.
Consumer Credit Act 2006: Statutory Instruments
2. The SIs (SI 1167 and SI 1168) were made on 31st March 2007 and have been published on the Office of Public Sector Information (OPSI) website at www.opsi.gov.uk/si/si200711.htm.
3. The SIs give full effect to a number of sections of the 2006 Act. These fall into three categories:
- Exemptions from regulation – sections 3 and 4 of the 2006 Act. The Consumer Credit (Exempt Agreements) Order (“the Order”) specifies: the conditions under which an agreement made with an individual of ‘high net worth’ may be exempted from regulation; and the form and content of the required statement of high net worth in relation to and the declaration by the individual. The Order also sets out the form and content of declarations by debtors or hirers where an agreement is wholly or predominantly for business purposes and the amount of credit provided under the agreement exceeds £25,000. A declaration creates a presumption that the agreement is entered into for such purposes. The Order comes into force on 6th April 2008.
- Post-contract information – The Consumer Credit (Information and Duration of Licences and Charges) Regulations (“the Regulations”) contain provisions relating to sections 6, 7, 9, 10, 12 and 17 of the 2006 Act. These Regulations specify precisely what information must be included in statements and notices given to consumers by creditors and owners. The objective has been to balance the need to ensure that consumers are provided with relevant and clear information about the state of their credit account as set out in the 2006 Act, with the need to ensure that any burden on industry is not disproportionate. These provisions come into force on 1st October 2008.
- Licensing issues – the Regulations also contain provisions relating to sections 34 and 35 of the 2006 Act. These set out the maximum duration of a time-limited licence, and the periods for the payment of charges for indefinite licenses. These provisions come into force on 6th April 2008
4. Since the Government’s response to the formal consultation on the draft SIs we have reconsidered the threshold for net available asset for an individual to qualify for the High Net Worth exemption. In our response we proposed a net assets threshold of £1,000,000 (i.e. excluding the individual’s main residence and pension). This proposal raised some strong concerns from industry respondents who argued that for the exemption to be effective the threshold should be consistent with the industry’s threshold for private banking services. A more appropriate threshold would be £500,000 as this would be consistent with the majority rather than a minority, of the private banking sector. The threshold in the final Order has been reduced to £500,000, which avoids risk of distorting the market. At this level, the number of potentially eligible individuals for the exemption is 250,000 or about 0.5% of the UK adult population.
The Ombudsman scheme for dispute resolution
5. From 6 April 2007, under the Financial Services and Markets Act 2000 (Ombudsman Scheme) (Consumer Credit Jurisdiction) Order 2007 we are extending the scope of the Financial Ombudsman Service (FOS) to cover all consumer credit licence holders. Businesses providing consumer credit information services and debt administration services will be covered by the Ombudsman scheme from October 2008. This means that all creditors with regulated credit agreements will have access to a free and independent means of resolving disputes with their lenders.
6. The Ombudsman will consider disputes between consumers and consumer credit licence holders. Where it finds in favour of the consumer, the Ombudsman will be able to resolve the dispute, e.g. by ordering the license holder to pay compensation, repay interest and charges, or even write off the debt.
7. For more information on the Ombudsman scheme, visit: http://www.financial-ombudsman.org.uk.
The Unfair Relationships Test
8. The Unfair Relationships Test, which comes into force on 6 April 2007, sets out to improve trader behaviour and protect consumers from abuses in the credit market. It does this by providing a mechanism for borrowers to challenge credit agreements in court on the grounds that the relationship between lender and borrower, in terms of the credit agreement, is unfair. This replaces the current concept of extortionate credit bargains.
9. For more information on the Consumer Credit Act 2006, visit the DTI website.
Department of Trade and Industry