Legal rights are provided by the Consumer Credit Act for people who have entered into credit agreements for less than £25,000. The Consumer Credit Act lays down strict rules about lending and borrowing money and in particular provides:
- that all lenders of money are licensed;
- that lenders show the buyer the true cost of credit;
- protection against unfair credit agreements and allows the court to reduce extortionate rates of interest;
- allows a cooling off period when a credit agreement is made at home. This will usually be for seven days but will not apply to loans arranged by post or telephone;
- ensures that if you pay off a loan early you will get a rebate.
Providing you have paid a third of the total price of the goods under a hire purchase agreement then the creditor cannot take the goods back without first getting a court order. Even if they apply for a court order you can ask the court to suspend the “Return Order” and accept your offer to pay the outstanding amounts by installments.
If a credit agreement is unfair then you can apply to the court and ask them to look at the agreement and put in place a new agreement or alter the old one. However, the court will only do this if it can be shown that the agreement is “extortionate”. To decide this Court will look at such things as your age, experience, “business knowledge”, state of health and the amount of financial pressure put on you when you entered the deal. The Court also considers the creditor’s position, such as the level of risk accepted by the creditor, including the value of any security, the creditor’s relationship to you, and with any other relevant matter, whether the creditor deliberately inflated the cash price to make the credit charges seem reasonable.
A seller can be the person who grants you credit or who arranged for you to get credit from a 3rd party. Alternatively it may be the third party who arranged to supply the goods to you. You can choose who to sue and either sue the seller or the provider of the credit or both. This is an advantage because if the seller goes out of business you can try and get your money from the credit provider instead.
You have an entitlement to a copy of the credit agreement which must show the total charge for credit, the annual percentage rate [APR], and the cash price for the goods.
The Act also allows people who have purchased faulty goods to claim against the finance company who lent money for the purchase of the goods. This can be a very useful remedy if a seller goes out of business or is unable to compensate you under the Consumer Protection Act. With hire purchase agreements a retailer sells the goods to a finance company, which then hires or sells them to you, so the finance company is both the supplier and the lender. It will therefore be fully responsible if the goods are faulty.
A company providing credit cannot demand early payment, try to get the goods back or end the agreement without serving a written notice giving seven days notice of their intention to take such action. Such is known as a Default Notice. If the purchaser has paid a third of the total price of the goods under a hire purchase agreement, then the creditor cannot take the goods back without first getting a court order.
If a credit agreements is unfair, then an application can be made to the court who have power to put in place a new agreement or alter the old one. This will only be done however if the court considers that the agreement is extortionate.