Credit where credit's due

Lengthy legislation protecting the consumer has just come into force in Ireland after being on the statute books since last July.

Enforcement of the Consumer Credit Act 1995 was delayed to give businesses affected an opportunity to adjust operations to come into line with the provisions.

The Act has caused some controversy in Ireland, with some saying it has gone too far in favour of the consumer. It bears some similarities to the UK Consumer Credit Act 1974, but a number of its provisions are even more far reaching. There are also criminal penalties for failure to comply with its provisions.

The Act consolidates existing legislation and provides for everything from consumer credit, hire purchase, leasing, housing loans, money lending and bank charges.

Its aim is to ensure transparency in credit agreements so that consumers understand exactly what they are entering into. Credit agreements must be in writing. And they must clearly set out the credit terms including the cash and credit terms, the amount and number of repayments and the APR.

Creditors ignore the requirements at their peril. The legislation provides that a credit agreement, or any guarantee or security given in respect of such an agreement, will not be enforceable where the requirements have not been observed.

The Act also makes compliance obligations for hire purchase agreements – consumer hire and moneylending agreements and housing loans.

Like UK consumer legislation, the new law introduces a “cooling-off” period. Customers are allowed to terminate an agreement within 10 days of receiving it by giving written notice to the creditor. However, the cooling-off period does not apply to housing loans, or credit card or overdraft transactions.

Creditors are forbidden from bullying. They are prohibited from calling or telephoning a consumer at work and from calling on the consumer between 9pm and 9am or on Sundays or public holidays without the consumer's consent. Strict limits are also imposed on sending written communications to the consumer's workplace.

Advertising of credit is regulated to ensure the consumer is not enticed by misleading advertising of good credit terms. The Act requires that the APR be shown prominently in consumer credit agreements and advertisements. No other rate of interest may appear.

There are also far-reaching clauses on financial information in relation to the customer. Persons refusing to enter an agreement with a consumer through doubts on his creditworthiness must disclose the name and address of the person from whom information was sought concerning the financial standing of the consumer. Where the consumer feels this information is wrong, he may give notice to the person storing that information to demand its removal or amendment. Whoever has the information must then inform the consumer that they have removed or amended it, or have taken no action.

Creditors must not demand early repayment or seek repossession without giving the consumer at least 10 days notice before they propose to take any action. This notice must state the action the creditors propose to take, together with details of the date of the proposed action.

Even where a consumer is in breach of the agreement, the creditor cannot demand early repayment or recover possession of goods supplied unless he has served notice not less than 10 days before he intends to take action.

The creditor must specify the action needed to remedy the breach or, if it cannot be remedied, the compensation sum payable, not less than 21 days after service of the notice. If the consumer remedies the breach within the 21-day period, then no record may be kept of the fact that he broke his agreement.

Consumers are also entitled to a reduction in the total cost of credit where the amount owed in the credit agreement or any sum becomes payable before the time fixed for the termination.

The legislation also covers mortgage lenders. A borrower is permitted to make early repayment of the whole or part of a housing loan without being liable to pay any redemption fee. The exemption does not apply where the loan agreement says that the rate of interest is fixed at the time of redemption.

Mortgage lenders will have to bear the costs in respect of the legal investigation of title of the property secured. And a warning must appear in documents relating to a housing loan to the effect that the property is at risk in the event of default.

The Act also repeals the Irish Moneylenders Acts 1990-1993 and all the statutory orders made under the old legislation. The new provisions apply only to moneylending agreements with consumers, which means that moneylending is no longer an issue for non-consumer agreements. Under the Act, all moneylenders are required to hold a moneylender's licence.

Repayment books must be supplied by moneylenders. The book must contain details of the amount of credit being advanced, the amount and number of repayments, the rate of interest charged and the number of each collection charge if any. Charges are not to be made in respect of expenses relating to the negotiation or granting of the loan.

The Act also gives a key watchdog role to the Director of Consumer Affairs. He may apply to the High Court for a declaration of the total cost of credit and any charge provided for in a credit agreement. The court has power where it is decided that the cost of credit is excessive to vary the agreement to do justice between the parties.