22) CONSUMER CREDIT Flashcards Preview

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Flashcards in 22) CONSUMER CREDIT Deck (16)
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1
Q

What are the Consumer Credit Acts? (CCA)

A

Legislation governing consu credit in UK by CCA 1974 & 2006
1974 estd basic princi of consu cr reguln
2006 consolidated, expanded and made up to date

2
Q

Who is respon for enforcement of CCAs

A

FCA

3
Q

CCA 1974 applies to…?

A
CCA 1974 purpose is to regulate, supervise and control certain types of lending to indiv and protect them from unscrupulous lending practices.
Act applies to
1/   those providing credit
2/   advice on obtaining cr
3/   advice on repaying cr

(applies to credit upto £25000)

Credit means * personal loans * overdrafts
* hire purchase *credit cards * store cards

4
Q

Does CCA regulate mortgages?

A

No, MCOB regulates mortgages

5
Q

What are the main provisions of CCA 1974?

A
  1. ..FCA licensing - must be FCA licensed
  2. ..Advertisement and cr agreements - form and content upto specified stds
  3. ..Loan agreement -Clients to receive copy of agreemt
  4. ..Cooling off prd - can decide not to go ahead
  5. ..Credit Ref Agencies - must on request disclose info held on indi, must correct that info if shown to be inaccurate
  6. ..Default, termination or early settlement - defined procedure
  7. ..Extortionate ROI or charges - powers for courts to grant relief to borrowers who have entered into cr agreemt with extortionate ROI/charges
6
Q

What was the most significant innovation of CCA 1974?

A

A sys for comparing price of lending, which is APR (annual percentage rate). It must be quoted for all regulated loans
APR represents a measure of the total cost of borrowing and its aim is to allow a fair comparison betn diff lenders, of overall cost of borrowing
APR calcu takes into acc two main factors
1…interest rate - whether daily, monthly, or annual basis
2…additional costs and fees charged eg application fee

As a result APR is higher than the interest rate being charged on the loan

7
Q

What is Annual Percentage Rate of Charge? APRC

A

Refers to mortgages under provisions of EU Mortgage Cr Directive and applies to first and second-charge mortgage lending

8
Q

What changes did CCA 2006 bring to CCA 1974?

A

Mainly,
__defn of indiv extended from ‘natural persons’ to unincorporated assoc, small prtnships(3 or less) and sole traders
__FOS scope extended to cover CCA
__Unfair Relationships Test introduced, - borrowers can challenge cr agreemt in court, replaced ‘extortionate’ cr from CCA 1974, courts given powers to vary a cr agmt if deemed unfair to borrower (1st only to new loans but later incl new and existing loans
__Limit of £25k loan size removed, all cr agmt by indiv regulated
__high-net-worth borrowers exempted from CCA provn
__cr providing busi regln to ensure fair practices, action against dishonest providers
__Lenders to provide ongoing info to borrowers such as statements, arrears notice etc
__regulation extended to debt administration service and credit information services

9
Q

What is Consumer Credit Directive?

A

CCD adopted by EU 2008, implmented Feb 2011
Imple in UK and applies to all cr agrmt regulated under CCAs (not those secured on land)
__Any advert shd have ‘representative APR’
__Borrower’s creditworthiness assessed by lender before granting or increasing credit
__‘Adeq explana’ to be provi reg a proposed cr so borrower can assess it meets their needs
__Certain info provided in wh follow std to borrower before cr agrmt. Pre-contractual info must be given in good time before entering into agrmt - info clear and easily legible.
__14 days cooling off prd for borrower to withdraw
__ROI changes must be sent in writing to borrower before changes take place
__Redress can be sought from creditor if unable to obtain satis from goods and serv - where CCAs would not normally provide redress, and hwr value of goods &serv is >£30k and credit does not exceed £60,260
__An open ended agrmt can be terminated by borrower any time w one month’s notice - creditor to give two months’ notice and must give justified reasons for termination
__Borrower to be informed if debt is sold to 3rd party
__Credit intermediaries to disclose if they are indep or working with one or more creditors exclusively..fee payable to intermediary disclosed up front
__Whr appln for cr declined based on info by CR agency, creditor must notify borrower and provide contact details of CRA

10
Q

What is Representative APR?

A

An APR that applies to 51 per cent or more of successful applicants for the credit product

11
Q

Who is a credit intermediary?

A

An intermediary helps an indi obtain credit, either by helping complete and appln, find lender for poor credit history or one with best rates

12
Q

How does FCA regulate and authorise CCAs?

(FCA took over from Office of Fair Trading (OFT) on 01 April 2014

A

CC firms must be authorised by FCA
FCA maintains register of firms granted CC licence
FCA expects firms to demonst fair treatment of cust
FCA uses Snr Mgrs & Certfn Regime for roles req FCA approval or certfn
FCA has dedicated supervsn and enforcement teams to tackle poor practice in credit industry

13
Q

What cap was introduced by FCA for high-cost, short-term credit? (payday lenders)

A

FCA introduced cap on 2 Jan 2015
- Int and fees charged must not exceed 0.8 per cent per day of the amount borrowed, default fees not to exceed £15, borrowers never reqd to pay more than 100 per cent of the amount of borowed by way of fees and charges

14
Q

List credit acti requiring full permission from FCA

A

Debt administration -Debt collecting
Debt counselling (commercial basis)
Debt adjusting ( “ “ )
Credit infor services
Credit Reference Agency services
P2P lending
Lending that is not ‘limited permission’ (lower risk acti - cannot apply for full FCA reguln)
Credit broking (Whr introducing customers to lending is main busi or where sale of goods and serv takes place in the cust’s home - a domestic premises supplier)

15
Q

Give summary of Consumer Credit Sourcebook
(CONC)
(UK consumer credit regulation)

A

CONC 1 : Appln and purpose and guidance on finanl difficulties- reminds firms of eleven Principles of Businesses, guidance for indicators that a cust is in finanl difficulty
CONC 2: Conduct of busi stds - general
Busi to treat cust fairly and not mislead them - not to target cust w offers of cr that are unsuitable for them
- no high-pr selling, coercion
-not allowing sufft and reasonable time to make repayments - steps to repossess a cust’s home only as last resort
CONC 3: Finanl promo and comms with cust
Explains what is ‘communication’ in reln to cr agrmt, comms shd be fair and not misleading - use os plain, understandable language, to make clear who is making the offer of cr- and shd be based on cust finanl circums
Reg payday lenders must carry msg “Warning: Late repayment can cause you serious money problems. For help go to moneyadviceservice.org.uk”
CONC 4: Pre-contractual requirements
deals w quotations for credit and relevant ‘health warnings. If home is used as security must include “your home is at risk if you do not keep up repayments on a mortg or other loan secured on it” - Lender shd provideinterests,, charges, costs shd the borrower be unable to pay

16
Q

Summary of CONC (consu cr sourcebook) - continued

A

CONC 5: Responsible lending
Creditworthiness estd first by info from borrower and CRA to ensure cust can afford repayments
CONC 5A: Cost cap for high-cost, short-term credit
Details of max charges that can be applied - broadly charges combined with other charges under the terms of agrmt cannot exceed more than borrowed amt
CONC 6: Post-contractual requirements
Covers checks if lender increases lending to cust eg inc o/d, cr limit on cr cd
Also what lender shd do if cust exceeds their o/d limit - such as writing to them
CONC 7: Arrears, default and recovery (including repossessions)
Policies and procedures for lenders to follow whn cust acc fall into arrears - treat cust fairly - be aware of vulnerability.
Covers debt collection and debt adminis acti and the orgn that undertake such work. This area was previously unregulated
CONC 8: Debt advice
uan beUndertaken by 3rd party counsellors/orgns. Provide debt-solution options. Enforcement actions procedures to be followed - not recomm unaffordable sdebt soln, discouraging cons: Appendix !u from seeking an alt source of debt counselling
CONC 10: Prudential rules for debt mgt firms
details for such firms including small, non-profit debt advice bodies
CONC 11: Cancellation
covers cancellation rights of peer to peer lenders and providers that make serv avai over internet
CONC 12-15: Appendix 1
less common areas of consumer cr…contains rules relating to total charge for credit, what is applies to and how it is calculated