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Article: New Consumer Credit Directive

Date: (19 January 2011)    |    

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The New Consumer Credit (EU Directive) Regulations 2010 The New Consumer Credit (EU Directive) Regulations 2010 was drafted in March 2010 and incorporated the Consumer Credit Directive 2008/48/EC

It is anticipated that this new directive will effect a change in the amount of consumers getting themselves into trouble with repayments of credit. Importantly, for the creditors at least, this could mean that they are more likely to see a return of the monies agreed to be paid when forming the agreement. The new regime will deter and at the same time prevent consumers from "over committing themselves beyond their ability to re-pay".

The Department for Business, Innovation and Skills has decided that there will be a transitional period and any new agreements entered into after 31 January 2011 must comply with the new requirements.

The major changes brought by the Consumer Credit directive are:

• Creditors must provide full explanations on the nature of credit being offered to the consumer; A duty for lenders to provide adequate explanations to consumers about the credit on offer to enable them to decide whether it is suited to their needs and circumstances. (Regulation 3 and 4 of the Directive).
• Consumers given the right of cancellation within 14 days of agreeing; the consumer has the right to withdraw from a credit agreement within 14 days without giving any reason. This replaces the current more limited right to cancel some types of agreements in certain circumstances. (Regulation 13 of the Directive).
• "Courtesy provision" that is to inform consumers when their debt has been sold; if a debt is assigned, the consumer must be informed of this by either the lender who buys the debt or the lender who sold the debt. (Regulation 36 of the Directive).
• Creditors to check "creditworthiness" of the potential debtor. An obligation for lenders to assess the creditworthiness of consumers before concluding a credit agreement or increasing the amount of credit available under an existing agreement. Lenders can decide how to assess creditworthiness, but are required to base their assessment on information obtained from the consumer, where appropriate and from a credit reference agency, where this is necessary. (Regulation 5 of the Directive).
• Refusal of credit. If an application is refused on the basis of information from a credit reference agency, the lender must inform the creditor of this when it declines the credit. (Regulation 40 of the Directive).
• Right to repay early. The consumer has the right to repay an agreement early in part and to receive a reduction in the total cost of the agreement as a result. The existing legal framework for full early repayment has been retained and extended to cover partial early repayment. (Regulation 29-34, 59-62 and 77-84 of the Directive).
• Right to terminate. The consumer has the right to terminate an open-end credit agreement at any time unless the parties have agreed that a period of notice not exceeding one month should be given. The lender can also terminate subject to given the consumer at least two months’ written notice. The lender can also terminate or suspend the consumer’s right to draw down an open-end credit agreement provided they give objectively justified reasons for doing so. (Regulation 37-38 of the Directive)