FOOL'S EYE VIEW
Your Credit And Your Rights

By Jane Mack (TMFJane)
June 15, 2004

I was rather pleased to note on one of the Motley Fool discussion boards the other day that a number of people have managed to get their bank charges for late payment reduced by using the law. Most people don't really know what the law is and so find it difficult to stand up for their rights.

It's perfectly reasonable for a bank to charge you a penalty if you slip up and miss a payment or bounce a cheque but, in this particular instance, someone had been charged £60 for forgetting about a Standing Order of just £32.

Under the terms of the Unfair Terms in Consumer Contracts Regulations 1999, an unfair term in a contract is not enforceable. And since charges are a contract term, if they're excessive then they could be deemed unfair. The problem, of course, is deciding whether a charge is excessive or not and that's a matter for the courts.

I'm not suggesting you toddle off to the court every time your bank imposes heavy charges but a couple of our Fools have got themselves a refund simply by quoting the regulations to their bank and mentioning the threat of legal action via the Small Claims Court. (This is not as hard as you might think). Alternatively you can complain to the Office of Fair Trading whose job it is to protect consumers from unfair terms.

The other major law that protects consumers is the 1974 Consumer Credit Act which is currently being updated by the government. Credit agreements under the current version are strictly regulated and if they're not made in accordance with the regulations then they can only be enforced with a Court Order. A couple of special rules apply to mail order catalogues but there are some general ones which apply to credit agreements across the board.

It is a statutory requirement that CCA-regulated agreements should be in writing and signed by the borrower and that they contain the following information:

• A prominent heading describing the type of agreement
• Names and addresses of the lender and borrower along with a signature box
• The amount of credit (or credit limit)
• Annual Percentage Rate (APR) and whether it will vary throughout the course of the agreement
• The total credit charges
• Description of goods supplied if any
• A notice of cancellation (if it is a cancellable agreement)
• Details of the repayment schedule
• Cash price of goods or services
• Amount of deposit
• Details of the consumer's rights ie: paying the account off early or termination rights etc.

If the agreement is not in accordance with the above requirements then it is unenforceable without a Court Order.

To take the example of goods ordered on credit from a mail order catalogue, people often buy items via friends or door-to-door agents and it's this sort of instance where signed credit agreements often get forgotten. You have a right to ask for a copy of the signed agreement and details of your account showing how much has been paid and how much is still owed. If the company can't provide it, then they've got a problem.

The only exception is if less than five repayments were required but since, for more expensive mail order products, most people spread their payments over a longer period, the regulations apply. This isn't a way to avoid paying debts that are owed but it's a useful thing to know if you're being hassled by a creditor who is insisting on calling in the entire debt.

In fact, any creditor who hasn't strictly followed the rules on the format of CCA-regulated agreements could find themselves without a leg to stand on when trying to enforce the debt. So if you're being hassled for repayment of debts, dig out the original paperwork and look very closely at it. You might find something that could persuade them to back off a little and be a bit more reasonable.

Note that, although the government has recently announced some improvements to the CCA regulations, most of the changes won't be implemented until May 2005. It means that, for the moment lenders can still use different methods of calculating the APR when you borrow money and can still trick you into buying insurance products such as payment protection plans by automatically including them in the agreement. They can also inflict high charges for settling a loan early.

From next May, APRs will have to be calculated in a standard way, there'll have to be a separate signature box for consumers to sign if they want insurance products and early settlement charges will be restricted to maximum interest of one month plus 28 days.

It's worth remembering that such laws exist to protect the consumer as well as to make clear to financial organisations their own rights and obligations. So don't be afraid to use them if you need to - especially as you often get results simply by mentioning that you're aware of their existence.

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