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The Consumer Credit Act 2006 - are you ready?

06 April 2008

On 6 April 2008 the £25,000 financial limit is being removed for all consumer credit lending and two new exemptions are being introduced being a business exemption, which only applies to lending over £25,000, and a high net worth exemption.

In brief, the exemptions can be used in the following instances:-

Business Exemption: For any lend over £25,000 AND where the lend is wholly and predominantly for business purposes, the debtor or hirer can sign an exemption to forego the protection of the act ( other than the laws relating to unfair relationships and the remaining legislation in relation to extortionate credit bargins).

High Net Worth: The debtor or hirer must be a natural person (i.e. not a partnership, unincorporated association or body corporate). The debtor or hirer must have assets of £500,000 (not including their main residential home) or an annual income of over £150,000 per annum. If there is more than one debtor or hirer each must individually qualify.

If you wish to rely on one of the exemption notices, a prescribed exemption statement must be inserted in your unregulated agreements with the customer. Your sales teams, underwriters and brokers should be trained on the new procedures, with guidance notes provided to assist. An important point to note is that some lending which was once unregulated may now be regulated when the limit is removed. It is therefore important to ensure that regulated agreements are used where appropriate and that agreements are compliance checked. Lenders that have been able to escape the Consumer Credit legislation purely on the basis that the lend exceeded £25,000 will now be subjected to the Consumer Credit Act 1974 and 2006 unless the lend is exempt.

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Joanne Davis

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T: 08700 86 4171
I: +44 (0)121 335 4171
E: joanne.davis@shoosmiths.co.uk