Credit Agreements

 

(Updated 19/03/25)

The Consumer Credit (Agreements) set out exactly what is required to be included in a credit agreement. Chapter 10 of the BIS Guide provides a summary of the requirements for credit agreements: http://www.bis.gov.uk/assets/biscore/consumer-issues/docs/c/10-1053-consumer-credit-directive-guidance.pdf

The main points are:

• The requirements of the Regulations apply to all consumer credit except that secured on land, exceeding £60,260 in value or credit agreements entered into for business purposes (either wholly or predominantly)
• The information to be provided in an agreement should be that set out in column 3 of schedule 1 to the Regulations in so far as it relates to the type of agreement in column 2 and should be provided in a clear and concise manner, easily legible.
• Statements of protections and remedies must be included in accordance with schedule 2.
• Regulation 4 sets out the “prescribed terms” which must be included in the agreement and signed by the borrower if it is to be enforceable without the need for a court order.These are: the amount of credit or credit limit; the rate of interest (including any conditions); the timing of repayments.
• Other items specified by schedule 1 are not required to be included in the signature copy but must still form part of the agreement.
• The borrower must sign the agreement in a space indicated for that purpose, for example, a signature box. The position of the signature space is not prescribed but must be such that it does not undermine required information or make it less likely to be read.
• Modifying agreements – which alter or supplement the terms of the original agreement – require only a statement where the item falls within regulation 3(1) which should be signed by the borrower. All other matters in regulation 3 apply.
• Information to be included in the agreement includes:
  – the nature of the agreement – under what legislation the agreement is made
  – the parties to the agreement – those involved in the agreement
  – the provision of credit – how and where the credit will be drawn down
  – the rate of interest – including any conditions that apply; must be provided in the prescribed APR form even where the agreement lasts less than one year; if there is more than one interest rate, all should be included
  – the total amount payable – including any advance charges made
  – repayments – the number and frequency of repayments
  – statement of account – the borrower has the right to request a statement of account for certain fixed-sum agreements
  – statement where no credit reduction – statements making it clear where certain repayments only contribute towards interest or other charges and do not reduce the principal owed
  – charges – details of any charges that apply to the agreement
  – notarial fees – any required notary fees are included
  – right to withdrawal – details of any right to withdrawal are provided
  – linked agreements – details of the borrower’s rights under section 75A where this applies
  – early settlement – statement confirming the borrower’s right to repay early and the terms under which this can be done
  – ombudsman scheme – a statement explaining the borrower’s right to take unsettled complaints to the ombudsman service for redress
  – supervisory authority – a statement confirming that the OFT is the supervisory authority for the agreement

The Regulations introduce amendments to the Consumer Credit Act (and subsequently CONC) for the purposes of credit agreements:

• new section 55C – requires the creditor to supply a copy of the proposed draft credit agreement to the prospective borrower upon request
• the OFT as regulator has no power to waive or vary the form and content of the credit agreement
• the creditor is required, upon request, to provide a copy of the executed credit agreement and failure to do so can result in the agreement becoming unenforceable.
• for certain types of credit – i.e. those of a fixed sum, of fixed duration and where credit is repayable in instalments – the creditor is required to provide a statement of account on request and free of charge. Such statements can be requested as many times as the borrower wishes up to a maximum of one per month. The statement must include a table detailing when each payment falls due for the remainder of the agreement and thus far including details of any arrears – paid or unpaid.
• the borrower can also request a separate statement providing details of the total sum paid to date, any payable sum as yet unpaid and any future sum that will become payable. This should include the date on which each instalment is due; the amount of the instalment; any conditions attached to its repayment and a breakdown of how each payment is apportioned between capital and interest or other charges. Where interest is variable, the current interest rate should also be included.

Debtor-creditor-supplier agreements

Available on the right hand side is a compliant loan agreement template which can be used by credit unions involved in BLS schemes and thereby required to comply with the consumer credit regulation. Also available is a process map that you may find useful in guiding you through the process.