Consumer Credit Directive: key changes and new requirements from 1 February 2011

13 minute read
23 February 2011

The Consumer Credit Act 1974 (CCA) is the principle piece of legislation regulating lending and credit related activities in the UK and some hire agreements. The CCA also implements the first Consumer Credit Directive (87/102/EEC) and two later amending Directives (90/88/EC and 98/7/EEC) in the UK.

After extensive negotiations, the new CCD was adopted at European level in April 2008, and published in the Official Journal of the European Union on 22 May 2008. The CCD, which repeals the first Directive (87/102/EEC), is designed to further harmonise the regulation of consumer credit across Europe and to increase consumer protection. The CCD was required to be transposed by member states into national law by 11 June 2010, although affected UK businesses had until 31 January 2011 to comply with the new requirements as set out below.

New regulations

The regulations implementing the CCD in the UK are:

  • The Consumer Credit (EU Directive) Regulations 2010 (SI 2010/1010) make a number of amendments to the CCA and to secondary legislation created under the CCA to implement various requirements of the CCD. These requirements include the provision of adequate explanations and the right of withdrawal.
  • The Consumer Credit (Total Charge for Credit) Regulations 2010 (SI 2010/1011) set out how the total charge for credit and the APR disclosed in advertising and consumer information must be calculated. They largely replace previous regulations on the total charge for credit.
  • The Consumer Credit (Disclosure of Information) Regulations 2010 (SI 2010/1013) outline what information must be provided to consumers before they enter into a credit agreement and the way in which that information must be provided. They largely replace previous regulations on the disclosure of pre-contractual information.
  • The Consumer Credit (Agreements) Regulations 2010 (SI 2010/1014) clearly state what information must be included in a credit agreement and how it must be presented. They include requirements on the signing of a credit agreement and largely replace previous regulations on the form and content of agreements.
  • The Consumer Credit (Amendment) Regulations 2010 (SI 2010/1969) amend errors that were identified in SI 2010/1010, SI 2010/1013 and SI 2010/1014.
  • The Consumer Credit (Advertisements) Regulations 2010 (SI 2010/1970) set out what information must be included in advertisements for consumer credit agreements and how that information must be presented. On the whole, they replace previous regulations on advertisements.
  • The Consumer Credit (Amendment) Regulations 2011 (SI 2011/11) correct a number of errors in SI 2010/1010, SI 2010/1011 and SI 2010/1013. The most significant amendment is to the formula used by a creditor to recover the cost incurred as a result of the debtor making a full or partial early repayment of more than £8,000 in any 12-month period.

Key changes

While the changes effected by the CCD are wide ranging, the following summarises the key points:

Early repayment

The existing right of a consumer to repay a loan early is extended to a right of partial early repayment on a similar basis. Calculations of the amount repayable on a partial repayment are to be made according to a new formula and the consumer informed of how the repayment will effect future payments and the outstanding balance. Where a fixed rate loan is repaid early and the amount repaid exceeds £8,000 in a 12-month period, the lender is able to claim compensation of up to 1% of the early repayment figure.

Contractual information

The Consumer Credit (Agreements) Regulations 2010 (SI 2010/1014) set out the information that must be provided to a consumer in a credit agreement and are somewhat different from requirements prior to 1 February 2011. In particular, all information must be presented in a way that is "clear and concise". Lenders can however, continue to rely on regulations that were applicable prior to 1 February 2011 where agreements fall outside the scope of the CCD as explained below.

APR calculation

There are new requirements (including a new formula) in relation to the calculation of the annual percentage rate of charge.

Variation of interest rates

There are minor changes to the manner in which changes in interest rates must be notified to consumers, which apply to all regulated agreements and not only those covered by the CCD. Changes to variable interest rates not linked to a reference rate must be notified to the consumer in advance. In addition, changes to rates linked to reference rates are no longer required to be notified to consumers purely due to the changes being advertised in branches or in newspapers. Instead, under the new regime, the consumer must be notified personally, periodically and in durable form.

Credit intermediaries

Credit intermediaries must now disclose their status to consumers in advertising and other materials; for instance by stating that they are independent, or working exclusively with one or more lenders. They must also disclose any fee charged to the consumer and pass that fee information to the lender so it is able to calculate the APR.


The existing exemptions from the UK regulated agreement requirements are provided for in section 16 CCA, and in the Consumer Credit Agreement (Exempt Agreements) Order 1989 (SI 1989/869) (as amended). Some of these exemptions are affected by Article 2 of the CCD and will need amendment. The existing derogation for credit is one example and has to be repaid within 12 months by not more than four instalments (section 16 (5) CCA and Article 3 of the Exempt Agreements Order). Under the CCD, this exemption should only apply to credit agreements where:

  • The credit is granted free of interest;
  • Without any other charges; and
  • The credit has to be repaid by a limited number of payments (four or less) within a year.

Where an existing UK exemption is affected by the CCD and requires amendment, the Department for Business, Innovation and Skills (BIS) plans to apply the change to all CCA regulated agreements that qualify for the exemption, and not just to agreements falling within the scope of the CCD.

The CCD does not allow the UK to apply the "high net worth" exemption (i.e. the exemption that enables very wealthy individuals to opt out of regulation) to loans below £60,260 (section 16A CCA and Articles 2-5 Consumer Credit (Exempt Agreements) Order 2007 (SI 2007/1168). However, BIS intends to continue to apply the exemption for loans above that threshold.

New requirements

The CCD also contains some requirements which are largely new to UK law. These include the following:

A duty on the lender to provide "adequate explanations" about the credit on offer to the consumer (Articles 4, 5 and 6 CCD)

Lenders must now provide an "adequate explanation" to a consumer about the credit offered to enable the consumer to decide whether the loan suits their needs and circumstances. The adequate explanation must be provided "in good time" before the consumer becomes bound by the agreement, and in the form of the Pre-Contract Credit Information. This is also known as the Standard European Consumer Credit Information form (SECCI), or in the case of overdrafts, the European Consumer Credit Information form. Similar in concept to the previous UK pre-contract information requirements, the form is highly prescriptive and different in nature to previous requirements. The information required is set out in the Consumer Credit (Disclosure of Information) Regulations 2010 (SI 2010/1013).

For business loans and loans exceeding £60,260 or secured over land, the pre 1 February 2011 rules continue to apply, although lenders can choose to comply with the new rules if they prefer. The obligation to provide adequate explanations does not apply to loans above £60,260 as explained later in this analysis.

An obligation on the lender to check the creditworthiness of a consumer before offering or increasing credit (Article 8 CCD)

Lenders are now required to assess a consumer's creditworthiness on the basis of "sufficient information" before concluding a credit agreement. They also have to do this before there is any "significant increase" in the total amount of credit.

Previously, there was no specific requirement to check creditworthiness, though there were (and remain) provisions relating to irresponsible lending. The new regulations do not specify what checks should be made, and lenders are left to determine the appropriate methods in each set of circumstances. Guidance on what may be required can be found on the Office of Fair Trading's website in it's response on "Irresponsible Lending - OFT Guidance for Creditors", March 2010 (updated February 2011).

Requirements concerning credit reference databases (Article 9 CCD)

There is no obligation on lenders to carry out checks with credit reference agencies, although in many cases this will be an appropriate part of checking creditworthiness as outlined earlier. However, where a consumer's application is rejected as a result of a database search, lenders must advise them immediately of the search results and at no charge, providing details of the database consulted.

A right for consumers to withdraw from a credit agreement within 14 days without giving any reason (Article 14 CCD)

The right of the consumer to withdraw from a credit agreement is extended to all agreements falling within the CCD, as well as hire purchase agreements, pawn broking agreements and business loans below £25,000. The right will not apply to consumer loans above £60,260 as previously discussed. Notice of withdrawal can be given in writing or orally and the consumer must repay the capital and interest accrued between drawdown and repayment. 

Requirements to inform consumers when debts are sold on (Article 17 CCD)

Prior to the implementation of the CCD, UK law deemed that on an assignment of a credit agreement from one lender to another there was no obligation in any circumstances to notify the consumer of the assignment. However, all consumers must now be notified of any assignment of their loan (for example on a portfolio transfer) where the existing lender is no longer intending to service the loan.

What impact, if any, will the CCD have on "out of scope" agreements?

The CCD will not cover the following types of agreement regulated under the CCA (known as "out of scope" agreements:

  • Lending to small businesses, partnerships and unincorporated bodies.
  • Loans below EUR 200 (which has been set at £160).
  • Loans above EUR 75,000 (which has been set at £60,260).
  • Second charge mortgages.
  • Hire purchase agreements (although it would appear that conditional sale agreements are within scope).
  • Credit with no interest or other charges, and repayable within three months with no interest and no, or insignificant charges.
  • Consumer hire agreements.

BIS is applying a case by case approach concerning whether or not to apply specific provisions within the CCD to "out of scope" agreements. Where it would be complex to apply the changes, the CCD requires some agreements while leaving others outside the scope. Subject to existing UK rules, BIS will give lenders a choice to either comply with current UK requirements or meet the new requirements of the CCD.

What about business lending?

Although the CCD does not cover any business lending, BIS proposes to apply the amending provisions of the CCD to business lending included under the CCA (i.e. business lending up to £25,000). However, the following CCD requirements would not apply to this business lending:

  • Advertising requirements (not currently covered by UK legislation) (Article 4 CCD).
  • Mandatory use of the SECCI, although pre-contractual information would still have to be provided (Article 5 and Annex II CCD).
  • Mandatory compliance with CCD contractual information requirements, although contractual information would still have to be provided (Article 10 CCD).
  • The requirement to provide amortisation tables (i.e. a table detailing periodic payment of interest and the principle balance of a loan) on demand (Article 10 CCD).

What about loans above £60,260?

BIS proposes that loans covered by the CCA that are above the CCD threshold of £60,260 should be subject to the CCD's requirements. However, the following provisions of the CCD would not apply to such loans:

  • Mandatory use of the SECCI, although pre-contractual information would still have to be provided (Article 5 and Annex II CCD).
  • Mandatory compliance with CCD contractual information requirements, although contractual information would still have to be provided (Article 10 CCD).
  • The right of withdrawal (Article 14, CCD).
  • The requirement to provide amortisation tables (i.e. a table detailing each periodic payment of interest and the principle balance of a loan) on demand (Article 10 CCD).
  • The requirement to provide adequate explanations (Article 5 CCD).

Action required?

Any business currently covered by or exempt from UK consumer credit legislation should now be assessing how it will be affected by the CCD changes. In particular, consideration should be given to advertising, credit agreements, other consumer-facing materials, business processes, staff training and IT systems.

NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.