Scope of Licensing
Consumer credit is regulated. In most cases, providers must be licensed or authorised by the Central Bank of Ireland. Certain aspects of consumer credit legislation are dealt with in our chapters relating to hire purchase, credit sales, leasing of goods and pawnbrokers. This is because of the focus on the transfer of personal property by way of security or transfer in a hire or hire purchase arrangement. This chapter looks at consumer credit generally and does not repeat material on hire purchase, leasing and credit sale agreements.
Consumer credit legislation applies to protect a consumer. A consumer is a person acting outside his trade business or profession. There can be question marks over the extent of who is or is not a consumer.
The Consumer Credit Act provisions are mandatory. They overrule any contract to the contrary. Any attempt by a lender or consumer credit provider to reduce its obligations would be void. Also void are statements which purport to limit liability or exclude the consumer’s rights.
Since the financial crisis commencing in 2007, significant development loans and guarantees were challenged as being consumer loans, and thereby invalid, as not complying with consumer credit legislation. The courts take the view that a person can have a number of businesses. For example it has been said that a business of commercial and property investment may constitute a business even though it is not a person’s principal trade or business. However, for the most part, such claims have not succeeded.
The administration and regulation of consumer credit providers was brought under the umbrella of the financial regulator in 2003. It now rests with the Central Bank of Ireland.
Credit is any deferred payment arrangement, loan or financial accommodation. There are a number of key features. The consumer credit legislation does not apply to employer loans and credit union loans. The latter are separately regulated.
The contract must be in a certain format, and certain information must be provided. Warnings may be required. The contract must be signed, and a copy given to the consumer. There is generally cooling off period in which the consumer may cancel the contract. This can be waived by further signing and writing.
Credit agreements, written overdraft or credit card agreements must be in a particular format and in writing. They must specify the names and addresses of parties and be signed by all parties. A copy of the contract must be given to the consumer within 10 days or sent to him. It must set out costs and penalties which may arise from non-compliance.
Any guarantee relating to a consumer credit contract must be in writing and signed by the parties. Similarly, a copy must be given to the guarantor personally within 10 days.
The consumer may withdraw from the agreement within 10 days. This notice must appear in block capital writing. This notice may be waived. However, the waiver must be accompanied by a block capital highlighted disclosure warning in relation to the disclosure.
Generally, if the consumer credit agreement requirements are not complied with, the agreement is presumed to be unenforceable. The court may allow the agreement to be enforceable where the breach was not deliberate, or the consumer was not prejudiced, and the court considers it just and equitable. The court may enforce the agreement on amended terms, so that it is just inequitable.
Certain activities are prohibited. Consumer credit advertisements are controlled under the Consumer Credit Act and under the Consumer Protection Code. There are certain substantive requirements in relation to the truth and accuracy of the requirements, truth, accuracy and completeness of the requirements.
Certain marketing techniques are prohibited. Provision may not be inserted requiring the consumer to indicate positively that he does not wish to proceed with supplementary services.
Certain advertisements and circulars may not be sent to minors. A person may not circulate a document to a person under 18 years for the purpose of financial gain inviting a borrower to borrow, obtain goods on credit, or obtain services on credit or to apply for information or advice on borrowing.
A credit agreement (in this context) is any agreement for a cash loan other than current or credit card account (which are separately regulated; see below). The agreement must state the following
- loan amount.
- Date of advance,
- amount of repayment installments,
- number of installments,
- when repayable
- interest rate,
- conditions under which interest may change,
- charges not included in APR.
- loan expiry date,
- early repayment procedures.
There are separate provisions for a credit card and running accounts. A running account is a credit agreement by which the consumer may receive from time to time from a creditor or third party, cash, goods, or services of an amount or value up to an amount or value such that, taking into account payments made by or to the credit of the consumer, the credit limit (if any) is not at any time exceeded.
An agreement for a credit card or running account must contain
- a statement of amount of credit limit at commencement.
- conditions in relation to variation,
- rate of interest,
- cost of termination.
An overdraft is an advance on a current account, other than a credit card account. The consumer must be provided with
- details of initial credit limit
- conditions relating to variation
- details of applicable charges conditions under which it may be amended
- procedure for termination.
The creditor must furnish the terms in writing within 10 days. Changes must also be notified. In the case of a variable interest rate, this notice may be given in a national newspaper.
A consumer may withdraw within 10 days. This does not apply to an overdraft or credit card.
The creditor must supply information within 10 days of request in writing including the following information
- copy of written agreement or statement of amount paid,
- amount due but unpaid,
- the date of each installment that remains unpaid,
- total amount outstanding and
- date of payment of each amount outstanding.
A small fee may be charged. This provision does not apply to housing loans.
Court Declaration Reopening
The consumer may apply to the Circuit Court for a declaration that the cost of credit is excessive. The court may have regard to the following
- interest rates prevailing at the currency of the agreement,
- age, business competence, literacy and numeracy of consumer
- risk involved for the creditor,
- security provided,
- creditor’s costs including cost of repayment,
- extent of competition for credit.
This does not apply to a loan by a regulated credit institution or mortgage lender. The bank must be given an opportunity to be heard.
The court may reopen the agreement if the total cost of credit is excessive. It may decide to relieve the consumer partly or in whole of the payment. The agreement may be revised. The court may order repayment to the consumer. The court may order the regulator to revoke or suspend the lender’s licence.
Various Consumer Protections
There are restrictions on a creditor contacting the consumer. See the separate chapters.
The supplier may be liable to a consumer where goods and services do not conform to warranties and conditions. The rights are preserved against the supplier where the goods are provided under a credit agreement, where there is a tripartite agreement between the supplier, seller and consumer. Where the consumer cannot enforce its right against the supplier he may pursue and enforce them against their creditor.
Where there is more than one agreement between a customer and the same creditor and a payment is made which is not sufficient to discharge all, the consumer may decide which agreement, to which it is appropriated. The creditor may do so if the consumer fails to do so in which event it must be appropriated proportionately. There are similar provisions in relation to hire purchase contracts.
Where one-third of the hire purchase price has been paid the owner may appropriate the payments as he sees fit if the hirer fails to do so. Otherwise, they must be appropriated towards the agreement to proportionately under the agreements, where there is more than one such.
Normally a cheque can be enforced. It is fully assignable by endorsement. The Consumer Credit Act limits this is an extent. It preserves any defence the consumer may have where the credit provider under a credit agreement endorses the cheque in payment. The third party is affected by any defences that may be there.
The protections under the Consumer Credit legislation are in addition to the provisions in relation to doorstep, distance, online contracts, CPC and the provisions in relation to consumer protection generally.
A consumer may decide to terminate a credit agreement earlier than the time fixed for termination. He must give notice of termination in writing of his intention to determine. The creditor must allow a reduction in the total cost of credit. This is to be calculated under a formula approved by the Central Bank.
If, for any reason, the money becomes payable before the time fixed by the agreement, the consumer is entitled to a reduction in the cost of credit. The formula for the reduction is approved by the Central Bank.
The creditor may not enforce the agreement unless it has complied with the legislation. Any demand for payment or assertion of a right to payment in respect of the agreement which is unenforceable under the act is unlawful.
It is an offence to threaten to bring proceedings, to place a name on a list of defaulters, or threaten to do so, or invoke any threat collection procedure or threaten to do so in respect of an unenforceable agreement.
In order to enforce an agreement the creditor must follow certain procedures. When demanding early payment, recovering possessions or treating the agreement as terminated the creditor must first serve a 10-days notice giving the following details of agreement
- name of parties,
- term of agreement to be enforced,
- statement of the action taken and
- the date after which action is to be taken.
Similarly remedies cannot be enforced for breach of contract unless 10 days’ notice in writing has been given. This relates to
- termination of agreement,
- recovery of possession,
- enforcement of security.
The notice must specify the above particulars and also if the breach is capable of remedying the action required to remedy it. At least 21 days notice must be given of such opportunity to remedy. If it is not capable of being remedied, then compensation must be paid, which may not be less than 21 days after notice together with information about failure to comply.
The creditor may apply to court to disapply the above provision if it would be just and equitable.
Where the creditor is compensated or recovers possession of goods, the courts must ensure the compensation or repossession does not unjustifiably enrich him.