Article in the Solicitors Journal
SJ 44 (1 Nov 1974)
||Doc. No. 1974.001
Understanding the Consumer Credit Act
By F A R BENNION, Draftsman of the Act
The supply to individuals (including unincorporated
firms) of credit not exceeding £5,000 is comprehensively regulated
throughout the United Kingdom by the Consumer Credit Act 1974. The Act replaces
the previous enactments regulating hire purchase, moneylending and pawnbroking,
and imposes a new licensing system on all who, by way of business, grant
consumer credit. It thus concerns clearing banks, finance houses, mail order
firms, retailers, service industries and other businesses providing the
citizen with financial accommodation. The Act also extends to ancillary
credit firms such as mortgage brokers, debt collectors and credit reference
The Consumer Credit Act will not be complete without the mass of regulations,
orders and other subordinate instruments which have yet to be issued. Inevitably,
the final structure will be complex and elaborate. Yet it has to be operated
without undue difficulty by thousands of people forming a wide cross-section
of our commercial life. The Act was drafted with that fact very much in
mind. Statutory regulation inevitably adds to the costs of the traders it
governs. Such costs are ultimately borne by the consumer and, since it is
pointless to give him financial protection with one hand while dipping heavily
into his pocket with the other, every effort has been made to keep them
to the minimum.
One obvious way of keeping down costs is to make the legislation as comprehensible
as possible, and we have tried hard to do this. Not all the explanation
which is desirable can be given in the Act itself however, and what follows
is an attempt to assist users of the Act by explaining the ways (some of
them novel) in which the system of drafting is designed to aid comprehension.
The Act is divided into 12 parts. Part I deals with the system of administering
the Act. This is to be done by the Director General of Fair Trading, with
the Secretary of State for Prices and Consumer Protection as the responsible
minister. A new system of wide ranging control cannot be set up without
devising new concepts, and frequently this requires new! terminology. Part
II of the Act lays down the basic concepts, and where necessary gives them
Credit and hire
The Act regulates credit in the widest sense, ie any form of financial accommodation.
Money loans, credit sales and hire j purchase are the main categories. Since
the Act aims to be all-embracing, it also extends to hire transactions,
since many of these are equivalent in substance, though not in form,; to
the giving of financial accommodation.
Credit is not sought for its own sake, but for what it will buy-its object.
The Act bases some important distinctions on this obvious fact. The object
may be the purchase of land or goods, or the enjoyment of services such
as transport or maintenance. Or it may simply be the general one of increasing
the debtor’s immediate purchasing power without reference to any particular
use of it. An object separately recognised by the Act is that of the debtor
who refinances his liabilities by an arrangement under which a debt-adjuster
pays off the various; debts in return for regular payments to him by the
The Act refers to the deal by which the debtor attains a specific 1 object
of the credit as a transaction which is financed by the j credit. The other
party to this transaction is called the supplier.
Sometimes, as in the case of a credit sale, the creditor and the supplier
are the same person. Where this happens the same agreement often deals both
with providing the credit and supplying its object.
Regulated credit agreements are divided into categories according to whether
or not the debtor is free to use the credit as he pleases. If a small shopkeeper
asks for a bank loan to buy a delivery truck the bank manager may insist
on paying the money direct to the seller of the truck. This will be a restricted-use
credit. If on the other hand the bank manager trusts his customer and gives
him an ordinary overdraft this will be an unrestricted-use credit.
Regulated credit agreements are also divided into debtor-creditor-supplier
agreements and debtor-creditor agreements. The distinction is a simple one.
If the creditor is also the supplier, or has a business connection with
the supplier, it is a debtor-creditor-supplier agreement. If the creditor
is not also the supplier, and has no business connection with the supplier,
it is a debtor-creditor agreement; the creditor merely provides the credit,
though he is not necessarily indifferent to how the debtor uses it.
Where the transaction financed by a debtor-creditor-supplier agreement is
effected by a separate agreement it is called a linked transaction, and
in some respects (notably the debtor’s right of cancellation) is treated
by the Act in the same way as if it had been part of the credit agreement.
The Act also aims to catch, as linked transactions, subsidiary agreements
into which the debtor may have been persuaded to enter. Examples are maintenance
and insurance agreements entered into on the purchase of consumer durables.
Anyone who, in the course of business, introduces an individual to a credit-grantor
is called by the Act a credit-broker, even though this may not be his main
business. Often a supplier will also be a credit-broker, as where a motor
car salesman introduces his customer to a finance company.
Part III of the Act lays down the system under which it is necessary to
obtain a licence from the Director General of Fair Trading in order to carry
on a consumer credit business or a consumer hire business. Part IV regulates
the methods by which people carrying on such businesses are permitted to
advertise their services or in other ways seek custom.
Regulating individual credit and hire agreements
We next come to the five Parts of the Act which regulate individual credit
and hire agreements. Part V deals with entry into such agreements, pt VI
with matters arising during the currency of agreements, pt VII with default
by the debtor or hirer and the termination of agreements generally, pt VIII
with security and pt IX with control by the county court over the enforcement
of agreements by the creditor or (in the case of hire agreements) the owner.
Part X applies to ancillary credit businesses, such as credit-brokerage,
the provisions of the Act relating to licensing and the seeking of business.
Part XI deals with enforcement of the Act, and pt XII contains supplementary
provisions. The area within which the Act operates is clearly marked out
by this division into Parts, and the title of the Part is given in a shoulder
note on every page—a new feature in legislation, which helps
the user to find his way round the Act.
Within the Parts there is also a logical arrangement of the various sections,
and powers to make regulations and other subordinate instruments are conferred
specifically in each section where such power is needed.
The Act uses a great number of terms for which it has been found necessary
to give definitions. The treatment of these follows a clear principle and
it will be helpful if this is understood. Definitions in Acts of Parliament
are of two kinds. First, there is the term which, without the definition,
is virtually meaningless, eg ‘debtor-creditor-supplier agreement’.
Second, there is the term, such as ‘advertisement’ or ‘business’,
which itself conveys the essential meaning—though for the sake of
additional clarity it may be desirable to spell this out. The Act deals
with expressions of the first kind by defining them in the first place where
they are used, and also including the term in the comprehensive definition
section (s 189). Expressions of the second type are only defined in the
definition section, thus avoiding cluttering up the body of the Act with
definitions not essential to the basic meaning. It follows that all the
117 terms defined by the Act are included in s 189. In the case of definitions
in the first category mentioned above, the definition is repeated in s 189
if it is fairly brief; otherwise the reader is referred back to the section
containing the definition.
Schedule of examples
It is often difficult to grasp the full meaning of an expression even though
it is defined. Accordingly the Act contains the novel feature of a schedule
(sched 2) of examples illustrating the application of 31 of the most important
terms used by the Act. In the section introducing sched 2 (s 188) it is
made clear that the examples are not exhaustive and that if it were thought
that any of them was inconsistent with a provision of the Act that provision
would prevail. Power is given to add further examples if thought desirable.
The Act creates 35 new offences, and the penalties for these are set out
comprehensively in sched 1. This enables the user of the Act to see at once
the range of activities now made subject to criminal sanction. Another set
of provisions grouped together is those dealing with the onus of proof in
various court proceedings. These are collected together in s 171.
Complaint is often made that it is not possible to tell from an Act of Parliament
whether conduct regulated by it is subject to criminal or civil sanctions
additional to those specified. To meet this criticism, s 170 provides that
there are to be no civil or criminal sanctions other than those expressly
set out in the Act, another novel feature.
Finally, there are the commencement and transitional provisions. These are
given in sched 3, which operates on this principle. Except where otherwise
mentioned in sched 3, the provisions of the Act came into effect on its
passing, that is on 31 July. Provisions which did not come into force then
(and that includes nearly all the operative provisions) will be brought
into force later by commencement orders. As and when these commencement
orders are made, the orders are required by s 192 to amend the relevant
provision in sched 3 so as to incorporate the commencement date in the Act.
This means that a user with a fully annotated text will be able to see from
the Act itself the date when each provision came into operation, and will
not need to search through statutory instruments to find it.
I hope that if the above points are borne in mind, practitioners will find
the new system imposed by the Consumer Credit Act 1974 reasonably comprehensible.