The Consumer Credit Act 1974 (as amended by the Consumer Credit Act 2006) regulates consumer credit. This is an important area that Registered Social Landlords (RSLs) must be aware of when providing any form of credit to tenants.
What is ?any other form of financial accommodation??
A consumer credit agreement is an agreement between an individual (the debtor) and any other person (the creditor) by which the creditor agrees to provide the debtor with credit. ?Credit? is defined in the Act as a cash loan, and any other form of ?financial accommodation?. This is a very broad term which includes time to pay arrangements. However, what about a common works scheme where the owner pays up over a period? Or allowing someone to pay their factoring bill? Or even their rent?
Surely there are exemptions?
A credit agreement is exempt from consumer credit regulation if:
- The credit is to be repaid within 12 months; AND
- In no more than 4 payments; and
- There is no interest or any other charges
It is also important to note that an agreement is not regarded as credit if it is ?a mere indulgence? but there is no relevant case law on this point.
Do RSLs have an exemption?
This is an area which has seen intensive lobbying by the legal profession. The Financial Services and Markets Act (Regulated Activities) (Amendment) (No. 2) Order 2013 Article 60.E (5) states that a credit agreement is an exempt agreement if:
- It is secured by a legal mortgage on land;
- The land is used or intended to be used as in or connection with a dwelling; and
- The lender is a housing authority
The definition of housing authority includes RSLs. However, a social housing tenant cannot give a legal mortgage. Non-RSL subsidiaries are also not exempted.
What do RSLs do in the meantime?
In April 2014 regulation of consumer credit will be transferred from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA). The FCA will then have the power to give guidance on grey (perimeter) areas. Pending this, all RSLs should ensure that they have the correct Category A licence to provide time to pay arrangements which do not fall within the RSL exemption.
If you would like further information, please contact our experienced team who will be happy to help.