Regulated credit agreements
All credit agreements are regulated unless they are exempt. Most credit agreements that debt advisers come across are regulated credit agreements. The following are all common types of credit regulated by the CCA 1974:
•credit cards;
•hire purchase agreements;
•payday loans;
•personal loans;
•store cards;
•secured loans are also covered, but not if they are secured on a client’s main residence, as these are classed as FCA-regulated mortgages.
Key terms for regulated credit agreements
Fixed-sum credit agreement
These are where a client borrows a fixed sum of money to be repaid over a fixed time, with fixed instalments and a fixed interest rate. Interest is added at the beginning of the agreement and repaid alongside the capital element of the credit over the period of the agreement. This means that the monthly payment are the same every month during the payment period.
Running account credit agreements
A personal credit agreement that enables a client to receive loans from time to time from a bank or other lender provided that a specified credit limit is not exceeded. Interest is charged on the amount loaned during any period. Interest is added on at the end of every month and can vary depending on the amount outstanding. Credit cards are an example of running account credit.
Consumer hire agreements
An agreement (either running-account or fixed-sum) which is made by a client with an individual (the hirer) for the hiring of goods which:
– is not a hire-purchase agreement; and
– is capable of lasting for more than three months (that is, even if it is originally made for a shorter period, it is capable of being extended).
An example of this is hiring tools or hiring a car for a short period, the important aspect of this is that the goods are returned to the hirer.
Credit-token agreement
A regulated agreement for the provision of credit in connection with the use of a credit-token, this can be for the supply of cash, goods or services on credit up to a set credit limit. In return, the client pays the creditor the full amount outstanding within a set time or by regular minimum instalments, with interest being charged on the full outstanding balance. An example of this is a credit or store card.
Restricted-use credit agreements
Credit (either running-account or fixed-sum) provided in such a way that the creditor controls its application or use. Restricted-use credit is also where there is an agreement to finance a specific transaction (usually the sale of goods) between a client and a creditor.
An example of this is a store card (credit token agreement) that can only be used in certain stores, or a loan taken out specifically for say the consolidation of debt.
Unrestricted-use credit agreements
An agreement under which the client is free to use the credit as they choose or where the client controls the application or use of the credit.
Hire purchase and conditional sale
In these contracts, the goods do not become the property of the client (hirer) until the final payment is made. If the client (hirer) cannot meet the normal payments the goods will eventually be repossessed. However, if they have paid one-third or more of the purchase price, the goods are protected, and a court order is necessary for a creditor to repossess the goods. If the goods are on private property (eg, a driveway), a court order is always required.
Secured loan
The consumer puts up something of value as security for the loan, this is usually a house or car. If they cannot meet payments, the loan company will eventually force the sale of the property in order to recover their unpaid debt. Any surplus money raised from the sale is returned to the consumer.
Linked transactions
It covers transactions entered into in compliance with a term in the original agreement such as a life insurance policy entered into under a loan agreement. It does not cover a transaction for the provision of security for the original agreement. Certain transactions are said to be related to a regulated agreement. This is important in withdrawal from, cancellation of, and unfair relationships between creditors and clients provisions.