Stakeholder Notice February 2008
1. This Notice provides an update on implementation of the Consumer Credit Act 2006 (CCA06). It relates specifically to current consultations on consumer credit legislation, the fourth Commencement Order and OFT General Notices.
Consumer Credit legislation: Current consultations
Legislative Reform Order to amend CCA1974
2. BERR is currently consulting on a draft Legislative Reform Order (LRO) to amend the Consumer Credit Act 1974 to address the unintended consequences of some of the provisions that are due to be introduced by CCA06. The consultation, which closes on 12 March 2008, can be found at: www.berr.gov.uk/consultations/page43129.html
3. We have been considering some of the key issues raised during the consultation so far as follows:
• section 86B “Notice of sums in arrears under fixed-sum credit agreements etc”;
• the proposal for a declaration to be made for the purpose of UK buy-to-let lending;
• period and coverage of the first statement issued after 1 October 2008.
Sharing credit data
4. The consultation considered the removal of barriers to the sharing of data on certain customers' existing credit commitments and sought views on the appropriate balance between individuals' rights to privacy and the protection of their data on the one hand and the wider public interest of responsible lending on the other.
5. The Government considered the responses to the consultation and decided to establish an expert working group to examine in detail the costs, benefits and options. The group comprises representatives of lenders, credit reference agencies, consumer groups, academia, relevant government departments and public bodies who have an in-depth understanding of data sharing practice, as well as data protection and human rights considerations. The group will report its findings to Ministers within a year.
6. The Government response was published on the BERR website on 12 February 2008: www.berr.gov.uk/files/file44412.pdf
Section 82
7. BERR and HM Treasury have been working together to address concerns raised by industry stakeholders that there may be circumstances in which residential mortgage agreements can be subject to two competing regulatory regimes. The Government proposed to amend section 82(2A) of the CCA to ensure that any regulated mortgage contract is regulated only under FSMA in a public consultation which closed on 14 February 2008. The Government is currently considering the consultation responses, with a view to issuing a Government Response and making the relevant secondary legislation in March to come into force on 6 April 2008.
8. Further information on the consultation, with background on the issue, is available at: www.hm-treasury.gov.uk/consultations_and_legislation/regulation_credit/consult_regulation_credit.cfm
Fourth Commencement Order
9. The fourth Commencement Order will be published in late March. This will bring into force all remaining provisions of CCA06 including section 2 – the removal of the financial limit (see also the proposed transitional provision). The reason for the delay is that the wording for the buy-to-let transitional (also see below) in the Order must mirror that in the LRO which can’t be finalised until after the end of the LRO consultation on 12 March 2008.
Transitional provision for buy-to-let lending
10. The LRO, subject to Parliamentary approval, is due to come into force on 1 October 2008. As a consequence there is a period of six months from 6 April 2008 (when the financial limit is lifted) when buy-to-let agreements would come within the scope of CCA regulation. To avoid this happening we are including a transitional provision in the 4th Commencement Order. The effect of this will be to commence section 2 for agreements other than those agreements meeting the new criteria for buy-to-let lending as set down in the LRO.
Transitional provision for existing unregulated agreements (section 2)
11. As reported in previous Stakeholder Notices lenders have raised concerns regarding the interaction of section 2 of CCA06 (removal of the £25K financial limit) and section 82 of the 1974 Act (variation of contracts). In particular concerns have been raised in relation to contractual variations which take place after 6 April 2008 where the original agreement which is varied is an unregulated agreement by virtue of the £25K financial limit. (The lifting of the financial limit only applies to new agreements made on or after 6 April 2008. Consequently existing agreements over £25K will remain unregulated unless subsequently varied).
12. Lenders are concerned that these previously unregulated agreements should not be brought into regulation under the 1974 Act where the variation concerned does not involve the provision of further credit, for example, rate switches, extensions of repayment term, payment holidays etc. To avoid any ambiguity, industry is seeking further clarification to the effect that credit, for the purpose of the transitional, means a cash loan.
13. Lenders have also queried whether section 82(2) of the 1974 Act should continue to apply where a previously unregulated agreement by virtue of the £25K financial limit, is varied by a later agreement which does involve the provision of new credit but which is itself exempt from regulation under section 16, 16A or 16B of the 1974 Act.
14. BERR is proposing to deal with these issues through transitional provisions in the 4th Commencement Order to the effect that the £25K financial limit should continue to apply in respect of previously unregulated agreements varied in these ways. The draft wording of the transitional is as follows:
“Transitional Provisions
4. – (1) Section 2(1) of the 2006 Act (removal of financial limits etc.) has no effect for the purposes of the application of section 82 of the 1974 Act (variation of agreements) where an agreement –
(a) varies or supplements an existing agreement; and
(b) would not, apart from section 82(2) of the 1974 Act, be treated as an agreement under which credit in the form of a cash loan is provided.
(2) Section 2(1) of the 2006 Act has no effect for the purposes of the application of section 82 of the 1974 Act where an exempt agreement varies or supplements an existing agreement.”
15. We would welcome comments on both the policy and draft wording of the proposed transitional provision as set out above. In particular, do you see any unintended consequences of making this change, for example, are there any non-financial variations that you think should not be exempt but which would be caught under this proposal? Comments should be sent to Jacqui.Entwistle@berr.gsi.gov.uk by no later than Thursday 6th March.
OFT General Notices related to consumer credit licensing
16. On 28 February the OFT published details of the new levels of fees that will be charged to businesses applying for, renewing or varying a consumer credit licence from 6 April 2008. One of the aims of the CCA 06 reforms is to allow the OFT to deliver enhanced consumer protection, both as a ‘gatekeeper’ at the point of entry into regulated activities, and in terms of ongoing monitoring and intervention when necessary. The OFT’s consumer credit licensing activities are moving to a ‘self-funding’ basis, with income collected from applicants and others incurring fees used to directly fund the OFT’s licensing work. An increase in fees for applying for and maintaining a licence is necessary to fund the OFT to deliver these reforms. Details of the new fee levels can be found at:www.oft.gov.uk/advice_and_resources/resource_base/credit-licence/fees
17. The OFT also published a number of General Notices this week, dealing with forms for renewal, variation and voluntary surrender of licences, limited licence categories, and the consumer credit jurisdiction levy which funds the Financial Ombudsman Service’s extended role in considering complaints about consumer credit products and services. An updated version of the OFT’s ‘Do You Need a Credit Licence?’ leaflet, which explains whether businesses need a consumer credit licence and how to apply for one, will be made available next week. Details of all of these publications can be found at: www.oft.gov.uk/oft_at_work/enforcement_regulation/credit_licensing
Further information on the Consumer Credit Act 2006
18. Either visit the BERR website or email CCA.06@berr.gsi.gov.uk