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Consumer Credit Act Explained

The Consumer Credit Act 1974 is an extremely complicated and long piece of statute law. Getting to grips with it is not easy, complicated by all the recent revisions and updates that have been made. However, these changes have been designed to benefit consumers by providing further clarification and additional rights. In this article, we will look at the fundamentals of the act including consumer rights, creditor obligations and what happens when you are behind with payments or cannot pay.

Firstly, you need to understand the kind of credit agreement that you have and how the contract was made.

Credit Agreements Explained

The Consumer Credit Act 1974 covers most credit agreements in the UK. There are exclusions, such as mortgages, loans with property used as security and charge cards such as American Express and Diners Club. In addition to the following credit agreements, credit cards, store cards, personals loans and overdrafts are covered by Consumer Credit Act 1974: conditional sale and credit sale agreements, hire purchase (HP) agreements and hire agreements.

A Credit Sale
This type of agreement is normally used for big-ticket purchases such as expensive computer equipment, boats and home improvements. It is essentially a loan for the full cost of the goods being purchased with the money paid back over a fixed period of time in equal monthly instalments. . The person owing the money may pay a deposit, and there may not be anything to pay for an initial period. However it is set up, you will own the goods as soon as the contract has been signed, . When something is advertised as being interest free, you will have to repay the outstanding balance within a stipulated period, otherwise the outstanding balance will form part of a new longer term credit agreement where you will have to pay interest.

B Hire Purchase (HP)
Under HP arrangements, you pay an amount every month to hire the goods, but won’t have ownership of it before the last payment has been paid back. Oftentimes, this type of arrangement includes a lump sum at the end of the period.

C Hire
This is the hire of goods in return for a monthly payment. You won’t ever own the goods and must either sign a new hire agreement at the end of the existing contract or return the goods to their owner. If you fail to pay or return the items before the end of the contract you can be taken to court for the money owed.

D Conditional Sale Arrangements
This is very similar to the Hire purchase agreement already described. The difference is you will not really own the items until you have paid off the loan. There could be additional conditions that have to be met before the goods are yours.

Contract Formation

Basically, this is about where you entered into the contract. Your rights as a consumer are affected by where the contract was signed and who was present. This has an impact on the cooling off rights, the information given and its presentation.

Clare is a contributor to the consumer forum and is interested in consumer rights. Read more about the Consumer Credit Act.