BIS issues Guidance on Consumer Credit Directive Regulations
19 August 2010Legislation implementing the provisions of the European Consumer Credit Directive is set to come into force on 1 February 2011.
This month, a couple of additional statutory instruments have also been made to correct minor drafting errors in the original Regulations. That the need for these changes was identified quite late in the process reflects the relative complexity of the Regulations, which make amendments to already complex existing legislation rather than having the simplicity of some stand-alone instruments.
The Consumer Credit Directive will make changes in a raft of areas, with major implications for all who engage in unsecured lending in the UK and the rest of Europe. In particular, it makes changes to consumer credit law on advertising, consumer information, and how the total charge for credit is calculated. The most significant reforms will include:
- The lender must provide consumers with "adequate explanations" about the credit it is offering
- A creditworthiness check must be made before credit is offered or increased
- Rejected consumers must always be told which credit reference agencies data was taken from, where it contributed to the decision to decline
- Consumers will be able to withdraw from any credit agreement within 14 days without penalty
- Borrowers must be informed when their debt is sold to a third party
- Partial settlements must be supported in addition to full early settlements
To help lenders to pick out and fully understand the implications of the important changes the Regulations bring, BIS has now issued guidance in 'plain English'. This summarises the principal modifications made to the consumer credit regime. The guidance can be found here.
There is also a "Quick Start" guide which gives a much briefer but very helpful insight into all the main areas of change. This may be particularly useful for staff members who have an interest in understanding the principal changes but who need not know all the underlying detail, such as management who are not directly involved in implementation, intermediaries and customer-facing staff. The "Quick Start" guide can be found here.
Consumer credit lenders now have a level of certainty about the new Regulations to help get measures in place before the requirements come into force on 1 February 2011. However timescales are short and the extent of change will be a substantial burden on many businesses.
Lenders will also need to take into account the requirements of the Irresponsible Lending Guidance which gives more detail on the specific practices that the OFT will expect to see over and above the legal minimum presented by the Regulations. This all adds up to complex and wide ranging internal projects, likely to drain resource from other, core activity.
Callcredit can help. Identifying customers who are in the very early stages of financial difficulty provides opportunities - both to help them and to minimise the expected damage to the bottom line. Meanwhile, data driven ways to assess affordability and verify income and expenditure levels can ensure ongoing responsibility in lending, meeting regulatory needs and reducing the potential for future bad debt.
