Consumer Credit Agreement

Most businesses that offer goods or services on credit must be licensed

Credit Agreement Protection

Protection is provided for individuals who have entered into credit agreements for less than £25,000.

A right is provided to cancel within a certain period if the agreement was signed in your home and not at the seller's premises. Providing you have paid a third of the total price of the goods under an HP agreement then the creditor can not take back the goods without first obtaining a court order. Even if the creditor applies for a court order you can ask the court to suspend the "Return Order" and accept your offer to pay the outstanding amount by instalments.

If a credit agreement is unfair then you can apply to the court and ask them to look at the agreement and put in place a new agreement or alter the old one. However, the court will only do this if it can be shown that the agreement is "extortionate".

To decide this the court will look at things such as:

  • your age

  • experience

  • business knowledge

  • state of health

  • amount of financial pressure put on you when you entered the deal

The Court

Also considers the creditor's position:

Before making a decision

  • such as the level of risk accepted by the creditor

  • the value of any security

  • the creditor's relationship to you

  • state of health

  • whether the creditor deliberately inflated the cash price to make the credit charges seem reasonable

A seller can be the person who provides you with credit or who arranged for you to obtain credit from a 3rd party. Alternatively it may be the third party who arranged to supply the goods to you. Your protection is that you can choose who to sue. You can either sue the seller or the provider of the credit or both. This helps you because if the seller goes out of business you can try and get your money from the credit provider instead.

You are entitled to a copy of the credit agreement which must show the total charge for credit and the annual percentage rate. Similarly if a price has not been agreed, the charge must be reasonable and in accordance with that charged by other suppliers for the same work in the same area.

A claim can be brought in the court for up to six years providing it can be shown that the problem was due to the work not being carried out properly or the goods or materials used were not of satisfactory quality.

The Consumer Credit Act lays down strict rules

About lending and borrowing money where the amount borrowed is less than £25,000

In particular the Act provides:

  • that all lenders of money are licensed

  • that lenders show the buyer the true cost of credit

  • protection against unfair credit agreements and allows the court to reduce extortionate rates of interest

  • allows a cooling off period when a credit agreement is made at home. This will usually be for seven days but will not apply to loans arranged by post or telephone

  • ensures that if you pay off a loan early you will get a rebate

The Act also allows people who have

Purchased faulty goods to claim against the finance company who lent money for the purchase of the goods

This can be a very useful remedy if a seller goes out of business or is unable to compensate you under the Sale of Goods Act. With hire purchase agreements, retailer's sell the goods to a finance company, which then hires or sells them to you, so the finance company is both the supplier and the lender. It will therefore be fully responsible if the goods are faulty.

A company providing credit cannot demand early payment or try to get the goods back or end the agreement without serving a written notice giving seven days notice of their intention to take such action. This is known as a Default Notice. If the purchaser has paid a third of the total price of the goods under a hire purchase agreement, then the creditor cannot take the goods back without first getting a court order.

If a credit agreement is unfair, then an application can be made to the court who have power to put in place a new agreement or alter the old one. This will only be done however if the court considers that the agreement is extortionate.