The Consumer Credit Act 1974 (c. 39) is an act of the Parliament of the United Kingdom that significantly reformed the law relating to consumer credit within the United Kingdom. The act remains in force, albeit heavily amended and partially replaced.
Prior to the act, legislation covering consumer credit was slapdash and focused on particular areas rather than consumer credit as a whole, such as moneylenders and hire-purchase agreements. Following the report of the Crowther Committee in 1971 it was decided that wide-ranging reform of consumer credit law was needed, and a bill to do this was introduced to Parliament. Despite its progress through Parliament being disrupted by a general election, the bill passed quickly through the legislative process thanks to support from both the government and the opposition, coming into law on 31 July 1974.
The act introduced new protection for consumers and new regulation for bodies trading in consumer credit and related industries. Such traders were required to have full licenses, originally issued by the Office of Fair Trading, which may be suspended or revoked in the event of irregularities. The act also regulates what may be taken as security, limits the ways in which credit organisations can advertise and gives the County Court the ability to intercede in the case of unfair or unjust credit agreements. It also gives additional rights to the debtor, including certain limited rights to cancel concluded agreements.
The act has seen multiple amendments, both small and large. The Consumer Credit Act 2006 (an amending act) inserted many further provisions, which sought to further strengthen protection for consumers. The Financial Services and Markets Act 2000 represented a more comprehensive overhaul of all financial regulation. An amending order made under that act in 2013The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2013 removed large swathes of the Consumer Credit Act. Part 1 was repealed in its entirety, with oversight transferred from the Office of Fair Trading (now abolished) to the Financial Conduct Authority. Many substantive regulations were also removed, but in many cases these were (broadly speaking) restated in the Regulated Activities Order.
Background Early evolution of consumer protection Consumer credit regulation was ignored by both Parliament and the courts for over 800 years, with the judges and Members of Parliament taking the attitude that there was no reason to interfere with fairly concluded contracts. The first piece of legislation to deal with consumer credit was the Bills of Sale Act 1854 (17 & 18 Vict. c. 36), which required bills of sale to be registered. This allowed the courts to intervene for the first time, since an unregistered bill of sale was void and could not be claimed by creditors. This act was followed by the Bills of Sale Act 1878 (41 & 42 Vict. c. 31) and the Bills of Sale Act (1878) Amendment Act 1882 (45 & 46 Vict. c. 43), which provided limited protection for debtors. Outside of these acts, however, little was done between 1854 and 1900, and moneylenders used this to their advantage, sometimes abusively; the report of the House of Commons Select Committee on Money-Lending in 1898 included testimony from one moneylender who admitted he charged 3,000% interest, while another had worked under 34 different aliases to avoid having notoriety associated with his name.
As a result of this report the Moneylenders Act 1900 was passed, which required registration for moneylenders and allowed the courts to dissolve "unfair" moneylending agreements. This act had two main weaknesses, however; firstly, many of the debtors who would like to sue their moneylender to have the agreement cancelled were by definition poor, and could not afford legal representation. Secondly, the act only focused on specific types of lenders; lending by a single moneylender was covered, lending by a bank was not. A second Moneylenders Act, the Moneylenders Act 1927 was passed, which required licensing as well as registration and forbade moneylenders from employing agents, canvasses or sending out unsolicited advertisements. Unfortunately the 1900 and 1927 acts also covered commercial transactions, and since people lending money in a commercial area were not excluded as banks were, a slight infraction could make a loan completely irrecoverable. This was partially solved with the passing of the Companies Act 1967, which allowed the Board of Trade to give individual moneylenders licenses saying that they were acting as banks, not moneylenders.
As a result of the restrictions on business caused by the Moneylenders Act 1927, the idea of hire-purchase developed. These were first regulated by the Hire-Purchase and Small Debt (Scotland) Act 1932, which only covered Scotland; England and Wales was first covered by the Hire-Purchase Act 1938, later amended by the Hire-Purchase Act 1954 and the Hire-Purchase Act 1964. The 1965 act applied to all hire-purchase agreements worth less than £2,000 and when the hirer and buyer was not a corporation.
Crowther Committee In 1965, the Crowther Committee was established to look at the state of consumer credit law in the United Kingdom. Chaired by Lord Crowther, the committee began sitting in December that year and eventually extended their review to cover consumer credit generally rather than just the bills of sale and moneylending they had initially been concerned with, and their report was finally published in March 1971. The report discussed the economical, social and legal aspects of consumer credit, and concluded that the existing law was so confused and unsatisfactory that it was not worth amending. Instead, it recommended the complete repeal of all existing legislation and its replacement with two new acts: a Lending and Security Act, which would regulate legitimate business transactions, and a Consumer Sale and Loan Act which would regulate consumer credit and establish a licensed system for its use.
The reaction to the report from consumer and business organisations was overwhelmingly positive, but the government initially did nothing, since the Department of Trade and Industry wanted time to work out the particular details of any acts. Their hand was eventually forced by Baroness Phillips a year later, who initiated a debate in the House of Lords on the matter. The government's official statement was that they were willing to accept almost all the recommendations made about consumer credit, they did not wish to legislate on lending and securities. In February 1973, they created a voluntary code which they expected those lending to observe. The code set out guidelines for loaning money to individuals and disclosing the cost of the loan.
In September 1973, the government issued a white paper titled Reform of the Law on Consumer Credit in which they indicated they were planning to implement almost all of the Crowther Committee's consumer credit recommendations. The only real differences were an increase in the limits for financial protection from £2,000 to £5,000 (due to the drop in value of money), and stronger protection for hirers under hire-purchase agreements.
Passage through Parliament The act was first introduced to Parliament as the Consumer Credit Bill at the beginning of November 1973, and initially ran to 96 pages. It was given its second reading on 14 November, and was welcomed by both the government and opposition. By February 1974, it had passed through the committee stage, but its progress was cut short by a general election in the same month. Thanks to the support of the opposition to the original bill, this did not make a significant impact, and the new administration immediately reintroduced the bill in the House of Lords. It was passed on 31 July 1974, and immediately received royal assent. The final version of the act contained 193 sections and five schedules, much larger than the original 96 pages.
Provisions The act as passed was divided into 12 sections, and was "designed to provide a comprehensive code regulating the consumer credit and consumer hire and almost every aspect of a credit granting operation".
Part I: Director General of Fair Trading The office of Director General of Fair Trading was created by the Fair Trading Act 1973, with the director general appointed by the government for a five-year term. Consumer credit was not originally part of his duties (although the scope of his role did contain some elements of consumer credit) and the Crowther Committee had recommended the creation of a separate Consumer Credit Commissioner, something included in the original bill. When the bill was resurrected after the February 1974 general election, however, it was decided that the duties should instead be given to the Office of Fair Trading, and for this purpose a separate division (the Division of Consumer Credit) was set up within the OFT.
Section 1 of the act gave the Director General of Fair Trading the duties of administering the licensing system set up by the act, supervising the working and enforcement of the Act and any regulations made by it and, if appropriate, enforce the act and regulations himself. The DGFT was also tasked with advising the government about social and commercial developments within the United Kingdom, and any actions taken to enforce the act and its orders and regulations. Section 4 of the act required him to disseminate any appropriate information and advice about consumer credit to the people of the United Kingdom. This allowed him to educate the public about consumer credit, and was intended to be conducted through organisations such as the Citizens Advice Bureau. The director general's duties under this act overlap slightly with those given by the Fair Trading Act, but were still an expansion over his original role. The director general was tasked with issuing licenses, and under section 35 of the act, the director general was required to maintain a register containing all appropriate information related to licenses and applications for licenses. The register was created on 2 February 1976, and was kept at Chancery House in London. The Enterprise Act 2002 formally substituted the Office of Fair Trading for the Director General of Fair Trading for the purposes of this Act.Enterprise Act 2002 s. 278-9
Part II: Credit agreements, hire agreements and linked transactions Part II contains definitions for many types of agreements covered by the act. There are three main types of agreement; regulated consumer credit agreements, regulated consumer hire agreements and partially regulated agreements.
Regulated agreements A regulated consumer credit agreement is defined as an agreement between two parties, one of whom (the debtor) is an individual, and the other of whom (the creditor) is "any other person", in which the creditor provides the debtor with credit not exceeding £5,000 (this figure was subsequently increased to £25,000 and under the Consumer Credit Act 2006 there is no upper limit). An exception to this definition is so-called "exempt agreements", which are agreements made where the creditor is a land improvement company, a charity, a friendly society, a trade union, an insurance company or "a body corporate named or specifically referred to in any public general Act".Consumer Credit Act 1974 S.16(1)