As of the 1st February 2011, any lenders providing unsecured loans, which are regulated by the Consumer Credit Act 1974, are going to have to comply with strict new guidelines imposed by the Consumer Credit (EU Directive) Regulations 2010. This new directive makes a number of alterations to the Consumer Credit Act 1974, in an attempt to make lending more fair and responsible, and to give borrowers greater rights.
These rules have been in force on a voluntary basis since April last year, but as of the 1st February, will become compulsory, and any loans entered into on or after this date, will have to comply with the new changes, providing that the loan does not exceed the financial limit of £60,260.
In my view, these changes are crucial at a time where the people are struggling to manage their debts, and often turn to further loans as the answer, without having the implications properly explained, or without their ability to repay being considered.
As a borrower, if you enter into a loan after the 1st February 2011, these are some of the key changes of which you should be aware:
Pre-contract information
There will now be a duty on your lender to provide you with adequate explanations about the credit on offer, to enable you to decide whether it is suited to your needs and circumstances. This means that clearer information must now be provided confirming things such as exactly how much you will have to pay both monthly and overall; any features of the loan that could have an adverse effect on you; and the clear consequences should you default on your repayments.
Assessment of creditworthiness
There will now be an obligation on the lender to check your creditworthiness before entering into a new loan agreement or increasing credit under an existing agreement. This goes hand in hand with the recent publication by the Office of Fair Trading (OFT) on Irresponsible Lending. Whilst lenders have been encouraged for some time to be more careful and responsible when checking a borrower’s creditworthiness, it is refreshing to now have a specific requirement for this to be done. This will hopefully minimise the number of bankruptcies and County Court claims, which are brought as a result of people being unable to afford the loans that they are given.
Right to cancel within 14 Days
You will now be able to cancel the loan agreement, either verbally, or in writing, within 14 days of signing the agreement, without having to give any reason for the cancellation. You will have to repay the loan advance, plus any interest accrued on it since the date of the agreement, but you will not have to pay any cancellation charges, or damages to your lender, for cancelling early.
New rules on advertising
As of the 1st February, lenders will have to replace the term 'typical APR' with a 'representative APR' which they must offer to at least 51% of their customers. This is so that you will have a clear idea of what the interest rate should be before you apply for the loan, and avoid lenders suddenly increasing it significantly above their normal rate, without good reason for doing so.
These are only some of the changes, and the Directive itself is quite extensive. It may be that if you entered into a loan after the 30th April 2010, your loan already should comply with the new regulations. If your loan agreement refers to the Consumer Credit (EU Directive) Regulations 2010, then it could mean that your lender has chosen to voluntarily comply with the regulations now.
If you think that your loan agreement falls under the new regulations, Stephensons offers an assessment of the agreement to see whether or not it can be challenged. If it can be challenged, you may be entitled to Legal Aid, subject to financial eligibility. You should contact our specialist Consumer team on 01616 966 229 to speak to one of our advisors.
By consumer solicitor, Heather Korwin-Szymanowska
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