More rights for consumers

Borrowers are granted increased rights from next week (April 6) when new consumer credit rules come into effect.

The changes are part of the continuing implementation of the Consumer Credit Act 2006, the greatest change to domestic consumer credit law in almost 30 years.

The chief new right is to have any dispute with a lender resolved via the Financial Ombudsman Service. Until now, bank and building society customers with savings and with mortgage loans have been able to take complaints to the Ombudsman, but those with smaller loans and credit agreements have often had no way of resolving disputes except by going to court. Now, any dispute that starts after April 6 in respect of a loan that hasn't already been paid off can be referred to the Ombudsman service.

Another strengthening of consumer rights is a new unfair relationships test. This will enable consumers who take loans out from next month to challenge unfair treatment by lenders in court. For those with existing loans this provision comes into effect in April 2008.

The new provisions apply to all consumer credit agreements other than FSA-regulated mortgage contracts for which rules already apply and cover complaints regarding not just credit but also hire purchase. Any business that holds a standard consumer credit licence must now, by law, comply with new complaints-handling requirements. If they fail to do so, their eligibility to hold a consumer credit licence could be adversely affected.

A wide array of businesses

The rules will cover a wide array of businesses, from loan companies, credit-broking and debt-collecting agencies to motor dealers and shops where arranging credit for purchases is secondary to their main business.

From now on, anyone arranging credit must have appropriate and effective procedures for dealing with customer complaints. These procedures must be written down and there must be time limits for resolving a complaint - usually within eight weeks. If the complaint is not resolved by then the customer has a right to take his case to the Financial Ombudsman Service.

Once the Ombudsman has made a ruling, businesses must comply with it promptly. As soon as the customer has accepted the terms of any settlement, these terms are legally binding on both parties. If the business fails to comply with an ombudsmans decision, the customer can go to court to enforce it.

Further changes to come into force

Yet further changes will come into force next year, as the new Act is phased in by stages. Among the most significant changes under the new provisions is the removal of the cap of £25,000 for regulated agreements which applied under the previous 1974 Act. Under the new Act all credit must comply with the rules, no matter how much is involved (unless specifically exempted), and the new rules embrace not only private borrowers but also sole traders and small partnerships with no more than three members.

Also from April 2008, lenders will be obliged to give their customers clearer and more regular information on the state of their credit accounts, and the Ombudsman will be able to compel creditors to do this, particularly in relation to arrears. It will also be able to restrict the charges that may be levied in the event of default for instance, creditors will only be allowed to charge simple interest on default sums.

27 March 2007 © Moneyextra.com

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