Monday 30th April, 2007 

Recent changes in the legislation governing the consumer credit industry have recently come into force. The Consumer Credit Act 2006 amends the outdated 1974 Act which was struggling to meet the demands of the 21st century. The principal aim of the Act is to improve the regulation of consumer credit and consumer hire businesses, whilst at the same time providing better protection and remedies for the consumer.

The Act, which came into force on 6th April 2007, aims to protect vulnerable consumers and encourage a fairer and more competitive market by:

• Creating new powers for courts to redress the balance in "unfair relationships" between debtors and creditors, making it easier for people to obtain some assistance from the court when they suffer the consequences of unfair lending practices.
• Extending the powers of the Financial Ombudsman Service (FOS) to investigate complaints brought by consumers in relation to consumer credit and consumer hire and to make rulings capable of enforcement by the courts.
• Compelling creditors to keep debtors informed about the state of their accounts, particularly in relation to arrears.
• Restricting the charges that may be made in the event of default. giving the OFT greater powers to regulate the industry, including powers to impose sanctions other than the removal of licences.

These new measures will empower the FOS to investigate lenders to discover if they acted irresponsibly to giving credit or advice. It can then order a lender to repay interest and charges. It can even order a lender to pay compensation or to write-off debt. Another interesting consequence of the Act is that the creditor should provide you with an annual statement of fixed-sum loans (e.g. personal loans as opposed to credit cards). If they don't, they are not entitled to enforce the agreement during the period of non-compliance. What's more, you don't have to pay interest during that time either!