NEW CONSUMER CREDIT REGULATIONS INTRODUCED

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21st July 2010 by Andrew Clarke

The European Communities (Consumer Credit Agreements) Regulations 2010 S.I. 2010 / 281 implement into Irish law the provisions of Directive 2008/48/EC on Credit Agreements for consumers.  The Regulations came into effect in Ireland on 11 June 2010.

1. Objectives of Directive/Regulations

The Directive and therefore the Regulations were designed to:-

  • Foster further integration of the Consumer Credit markets.
  • Give a higher level of consumer protection.
  • Create a level playing field for creditors. 
  • Create a climate of confidence for consumers to enjoy the same levels of protection thought the EU.

2. Scope of Regulations

The Regulations cover all forms of consumer credit between €200.00 and €75,000 but exclude:

  • Credit Agreements secured by a mortgage or other comparable security on immoveable property or a right related to immoveable property.
  • Credit Agreements the purpose of which is to acquire or retain property rights in land or in existing or projected building.
  • Hiring/Leasing Agreements
  • Credit Agreements in the form of an overdraft facility where the credit has to be repaid within 1 month.
  • Credit Agreements where the credit is granted free of interest or at lower rates of interest to those available to members of the general public
  • Credit Agreements concluded with an investment firm or credit institution for the purpose of allowing an investor to carry out a transaction relating to an instrument or instruments of a kind listed in Part 3 of Schedule 1 to the MIFID Regulations.
  • Credit Agreements which are the outcome of a settlement reached in court or before another Statutory Body.
  • Credit Agreements which relate to the deferred payment free of charge of an existing debt
  • Certain agreements for the supply of a service or utility where payment is in instalments.

It is also important to note that the Regulations apply only to “consumers” and for this purpose consumer is defined in the Regulations as “a natural person who is acting in the course of a transaction to which these Regulations apply, for purposes outside his/her trade, business or profession”.  This definition replicates the definition of a consumer under the Consumer Credit Act 1995 (“CCA”).

The definition of Credit Agreement broadly mirrors that in the CCA though it specifically excludes “the provision on a continuing basis of services or the supply of goods of the same kind where the consumer pays for the services or goods by instalments for the duration of their provision”. Creditor means “a person who grants or promises to grant credit in the course of a trade business or profession”.

In general, the Regulations augment the existing provisions relating to consumer credit under the Consumer Credit Act, 1995.  However, there are important distinctions which should be noted as follows:

  • Regulation 4 of the Regulations provides that any reference to the annual percentage rate (APR) in Part 2 of  the CCA shall now be determined in accordance with the new definition of APR contained in Schedule 1 to the Regulations.
  • Regulation 4.2 seeks to avoid duplication with Part 3, 4 and 5 of the CCA states that those parts will not apply to Credit Agreements regulated under the Regulations save that the following provisions will continue to apply:

    Section 30(1) - obligation on the Bank to conclude the Credit Agreement any contract of guarantee relating thereto in writing and ensure that a copy of same be handed personally to the consumer upon making of the Agreement or delivered or sent to the consumer within 10 days of the Agreement being signed

    Section 42 - the fact that a Credit Agreement has been signed shall not in any way affect the rights of a consumer under the Sale of Goods and Supply of Services Act, 1980.

    Section 45 - Restrictions on written communications i.e. sending the communication in a sealed envelope, having nothing written or printed thereon other than the name and address of the consumer and at the discretion of the sender the words “personal” or “private” and a PO Box number together with, if desired by the sender, the words “if undelivered please return to” or similar words

    Regulation 4.4 states that the provisions of Parts 3, 4 and 5 of the CCA in relation to contracts of guarantee relating to Credit Agreements continue to apply.

  • Regulation 5 states that broadly speaking, the Regulations don’t apply to a Credit Agreement that is already in existence when the Regulations came into operation.  However, Regulations 14, 15, 16 and 20( which deal with information concerning changes in borrowing rates, obligations in relation to overdraft facilities, termination of open ended Credit Agreements and assignment of creditors’ rights) will apply to open ended Credit Agreements that are in existence when the Regulations came into operation

3. Summary of New Provisions

Advertising Requirements

Regulation 7 requires that any advertising in relation to a Credit Agreement which indicates an interest rate or new figures relating to the cost of credit to the consumer must include standard information in accordance with the Regulations.

This standard information must specify in a clear, concise and prominent way:-

  • The borrowing rate, fixed or variable or both, together with the particulars of any charges included in the total cost of credit to the consumer;
  • The total amount of the credit;
  • Subject to below the APR;
  • If applicable, the duration of the Credit Agreement;
  • In relation to credit in the form of deferred payment for a specific good or invoice the cash price and the amount of any advance payment; and
  • If applicable, the total amount payable by the consumer and the amount of the instalments.

However in relation to Credit Agreements in relation to an overdraft facility, the APR does not need to be provided.

Pre Contract Disclosures

Regulations 8 and 9 oblige the creditor to provide the consumer with either what is known as a Standard European Consumer Credit Information or a European Consumer Credit information.  The SECCI is used for general term loans, while the ECCI is used for overdrafts and is in shorter form.  The requirements are set out in detail in Regulations 8 and 9 and there is obviously a lot of overlap between them.  Most of the information required was already required under the CCA but there are some new provisions which should be noted as follows:

  • The creditor needs to make sure that they give detailed and informed explanations to consumers so that the latter can analyse whether the Credit Agreement is suitable for their needs and financial circumstances.  The creditor needs to explain any pre-contractual information, the essential characteristics of the product and the specific effects they may have on the consumer and the consequences of default.
  • Creditors are now obliged to give borrowers on request anatomisation table setting out the payments owing, the periods and conditions relating to the payment of such amounts and a breakdown of each repayment.
  • Creditors must now assess the credit worthiness of the consumer before concluding a contract on the basis of information obtained from the consumer and where necessary, on the basis of consulting the relevant credit database (Regulation 11).
  • If the consumer’s application is rejected because of the result of the database search, the creditor must inform the consumer immediately and without charge of this result and of the identity of the database concerned.

Regulation 13 sets out in detail the requirements for the Credit Agreement itself and broadly speaking these mirror the provisions of the CCA  save the provision for the amortisation table.

Right of Withdrawal

Currently under the CCA the consumer has a 10 day cooling off period which allows them to withdraw from the Agreement.  This waiver can be waived.  However, in the case of Credit Agreements to which the Regulations apply, a full 14 day right of withdrawal applies to all Credit Agreements and there is no option to waive this right of withdrawal.  Technically the consumer can cancel the Agreement within 14 days from the day a copy of the Agreement is concluded or the date it was received, whichever is the later.  They do not have to give any reason for their cancellation and the Notice to Exercise the Waiver is valid if sent by the consumer on the last day, even if it is not received by the creditor until afterwards.

Regulation 18 provides that where a consumer has exercised his right of withdrawal, he/she also ceases to be bound by any linked Credit Agreement.

Early repayment by consumer

Regulation 19 provides that the consumer can at any time discharge fully or partially his obligations under a Credit Agreement.  If he/she does that, he is entitled to a reduction in the cost of the credit to the extent of the interest on the costs for the remaining duration of the Agreement.  However, in the event of early repayment, the creditor is entitled to fair and reasonable compensation for possible costs directly linked to early repayment if the early repayment falls within a fixed rate of borrowing.  The compensation cannot exceed:

  • if the period between the early repayment and the agreed termination of credit exceeds 1 year 1% of the amount of credit repaid early; or
  • if that period is 1 year or less 0.5% of the amount of credit repaid early.

Creditors are not entitled to compensation if (i) the repayment has been made under an insurance contract intended to provide a credit repayment guarantee or(ii)in the case of an overdraft facility if the repayment falls within a period of which the borrowing rate is not fixed.

In addition, any compensation paid shall not exceed the amount of interest the consumer would have paid during the period between the early repayment and the agreed date of termination of the Credit Agreement. 

Notification of assignment by Creditor

Section 20 provides that the consumer must be informed of any assignment by the creditor by way of securitisation of the original Credit Agreement.  If the creditor’s rights have been so assigned, the consumer is entitled to plead against the assignee any defence available to him against the original creditor including set-off. This in reality mirrors the common law position on notification of assignments.

Current accounts – over run

This section applies in the case of open current accounts which might overrun.  If overrunning continues for longer than 1 month, the creditor shall inform the consumer without delay on paper or on another durable medium:-

  • Of the overrunning;
  • Of the amount involved;
  • Of the borrowing rate;
  • Of any penalties, charges or interest or arrears applicable.

Offences

Regulation 25 sets out the offences under the Act.

On summary conviction,-a fine of €3,000 or imprisonment of 12 months or both. 

Conviction on indictment- a fine not exceeding €100,000 or imprisonment for a term not exceeding 3 years.

There are further penalties for continuation of offences or if the offence has been committed by a body corporate. If it can be shown that the offence was committed with the consent, connivance or approval attributed to the wilful neglect of an officer of the company or a person holding themselves out as such.  Then that person as well as the body corporate is guilty of the offence.

Further Information:

Please contact: Andrew Clarke - aclarke@mckr.ie - Tel: +353 1 670 2990

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