Clause 15: Enforceability of regulated agreements

37.     The 1974 Act provides that in certain circumstances where the requirements of the Act are not complied with in relation to regulated agreements or to security provided in relation to such agreements, the agreement or security is enforceable against the debtor or hirer only on an order of the court. Sections 127(1) and (2) of the 1974 Act give the court discretion whether to grant an enforcement order in those circumstances subject to subsections (3) and (4). Section 127(3) and (4) provides that a court shall not make an enforcement order (i.e. a consumer credit or hire agreement will be automatically unenforceable) where:

• prescribed requirements in relation to the execution of regulated agreements (set out in section 61(1)(a) of the 1974 Act) were not complied with or a document containing all the prescribed terms of the agreement was not signed by the debtor or hirer;

• the specific requirements imposed by sections 62, 63 and 64 of the 1974 Act in relation to cancellable agreements as regards supplying copies of the agreement before and after its execution and giving notice of the cancellation rights are not complied with. A cancellable agreement is an agreement which, by virtue of section 67 of the 1974 Act, may be cancelled by the debtor or hirer, essentially where oral representations about the agreement have been made to the debtor or hirer face-to-face before the agreement is made other than on the business premises of the creditor or owner or connected persons and where the agreement is not secured on land.

38.     Clause 15 repeals sections 127(3) to (5) of the 1974 Act (subsection (5) is consequential on subsection (3)), which means that a court will have the power to determine in its discretion whether agreements are enforceable in accordance with section 127(1) and (2) regardless of the breach in question.

Clause 16: Time orders

39.     Section 129 of the 1974 Act provides that a debtor or hirer may apply to the court for a time order. A time order is an order in which the court may reschedule any payments due under the regulated agreement. Clause 16 amends section 129(1) of the 1974 Act and inserts a new section 129A after section 129 of the 1974 Act. Section 129 sets out the circumstances in which a debtor or hirer may apply for, and a court may grant, a time order in respect of a regulated agreement. The amended section 129 will enable a debtor or hirer to apply for a time order after having received a notice of sums in arrears (where required by the new sections 86B or 86C inserted in the 1974 Act by this Bill), in addition to being able to make an application after having received a default notice (under section 87). This does not permit a debtor or hirer to automatically make an application.

40.     Having received a notice of sums in arrears, the debtor or hirer may only make an application if he has given a notice to the creditor or owner including certain required information and a period of 14 days has passed since he gave the notice to the creditor or owner. This requirement does not apply to debtors or hirers who receive default notices under s.87 of the 1974 Act. A notice given under this section by a debtor or hirer must indicate that the debtor or hirer intends to make the application for a time order in relation to the agreement, indicate that he wants to make a proposal to the creditor or owner in relation to his making of payments under the agreement and give details of that proposal. Although the notice must be in writing, there are no specific requirements as to its form.

41.     Subsection (3) provides that, in respect of applications relating to time orders under section 129 and 130(6) of the 1974 Act made in Scotland, the rules of the Sheriff Court may permit the debtor or hirer to be represented by a person who is not an advocate or a solicitor. (Section 130(6) of the 1974 Act allows a court to vary or revoke a time order on the application of any person affected by it.) Subsection (4) makes it clear that, in such circumstances, a person representing a debtor or hirer will not breach section 32(2B) of the Solicitors (Scotland) Act 1980, which prohibits persons who are not advocates or solicitors from preparing certain documents. This brings the position in Scotland into line with that in the rest of the UK where lay representation is already permissible in these cases.

Clause 17: Interest payable on judgment debts etc.

42.     Clause 17 inserts a new section 130A after section 130 of the 1974 Act. Section 130A imposes requirements on a creditor or owner to notify and give information to debtors and hirers in the specified form about interest applying to a judgment debt by virtue of a term of the agreement enabling interest to accrue after judgment until payment. After the giving of a judgment, where such interest applies to a judgment sum, the creditor or owner must notify the debtor or hirer and provide further notices at intervals of not more than 6 months. The notice may be incorporated into any other statement or notice that the creditor or owner gives to the debtor or hirer under the 1974 Act. The debtor or hirer will not be liable to pay such interest for any period when the creditor or owner has not complied with the requirements of this section. This provision does not apply where a court has the power to order that interest at a specified rate be payable on a judgment sum.

Clause 18: Definition of "default sum"

43.     Clause 18 inserts a new definition of "default sum" into the 1974 Act. "Default sum" means a sum payable by a debtor or hirer in connection with his breach of a regulated agreement (e.g. a charge imposed for late payment of an instalment due under the agreement or a fee imposed for exceeding a credit limit on a credit card). A default sum does not include sums that, as a consequence of a breach of the agreement, become payable earlier than they otherwise would have done. It does not include interest.

UNFAIR RELATIONSHIPS

44.     Clauses 19-22 repeal and replace sections 137-140 of the 1974 Act which empowered the Court to reopen an 'extortionate credit bargain'. A bargain was 'extortionate', if at the time the agreement was made, it required the debtor to make payments which were grossly exorbitant or otherwise grossly contravened ordinary principles of fair dealing. In coming to its conclusions the court was required to consider evidence produced concerning specific factors relevant to prevailing interest rates, the debtor (e.g. age, experience or degree of financial pressure) and creditor (e.g. accepted risk having regard to value of security).

45.     The amended provisions will enable a court to consider whether the relationship between the creditor and debtor arising out of that agreement is unfair to the debtor because of the terms of the agreement, the way in which the agreement is operated by the creditor or any other thing done or not done by the creditor before or after the agreement was made. The court may take into account all matters it thinks relevant relating to the creditor and debtor in making its assessment. The court is provided with a broad range of remedies under new section 140B to address the unfairness.

Clause 19: Unfair relationships between creditors and debtors

46.     Clause 19 inserts a new section 140A after section 140 of the 1974 Act. Section 140A(1) enables a court to make an order under the new section 140B, inserted into the 1974 Act by clause 20 (see below) if it finds that the relationship between the creditor and the debtor arising out of a credit agreement, or that agreement taken with any related agreement, is unfair to the debtor. A relationship may be unfair to the debtor because of one or more of the following:

• any of the terms of the agreement or any related agreement;

• the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement;

• any other thing done (or not done) by, or on behalf of, the creditor (whether occurring before or after the making of the agreement or any related agreement).

• 47.     The court may take into account all matters it thinks relevant (including matters relevant to the debtor and to the creditor) in determining whether a relationship is unfair. This may include anything done or not done on behalf of or in relation to the creditor's associates or former associates (as defined by section 184 of the 1974 Act).

48.     Section 140A does not apply to agreements that are exempt under section 16(6C) of the 1974 Act. Section 16(6C) exempts consumer credit agreements secured on land that are regulated by FSA under FSMA.

Clause 20: Powers of the court in relation to unfair relationships

• 49.     Clause 20 inserts a new section 140B after the new section 140A (inserted into the 1974 Act by clause 19). Section 140B sets out the types of orders that a court may make in relation to any determination that a relationship between a creditor and a debtor is unfair.

Clause 21: Interpretation of ss.140A and 140B of the 1974 Act

50.     Clause 21 inserts a new section 140C after the new section 140B (inserted into the 1974 Act by clause 20). The new section 140C defines the types of agreements that are covered by sections 140A and 140B. Any agreement that involves the provision of credit to an individual, whether or not regulated by the 1974 Act (except as specified (see paragraph 48 above)), is covered. The sections also cover, through the definition of "related agreement", the practice where the creditor enters into successive credit agreements with a debtor for the purpose, for example, of increasing the total amount of the debt or obtaining multiple fees from the debtor for setting up each loan.

Clause 22: Further provision relating to unfair relationships

51.     Clause 22 makes consequential amendments. In particular, it inserts a new section 140D, which requires OFT to give advice and information about the interaction between the provisions on unfair relationships and Part 8 of the Enterprise Act 2002. Part 8 of the Enterprise Act 2002 allows OFT to bring proceedings against a person who, as a consequence of a breach of a statutory obligation, harms the collective interests of consumers in the United Kingdom. The advice and information published by OFT may include examples of the circumstances, conduct or practices that, in the opinion of OFT, could give rise to an unfair relationship between creditors and debtors.

52.     Clause 22(3) repeals sections 137 to 140 of the 1974 Act, which permit the court to re-open or set aside a credit agreement if it finds the credit bargain to be extortionate (see paragraph 44 above).

BUSINESSES REQUIRING A LICENCE AND CONSEQUENCES OF NOT BEING LICENSED

Clause 23: Definitions of consumer credit business and consumer hire business

53.     Clause 23 redefines "consumer credit business" and "consumer hire business" to clarify that these include respectively being a creditor or an owner under regulated agreements. "Creditor" and "owner" are defined in section 189(1) of the 1974 Act.

Clause 24: Debt administration

54.     Clause 24 amends section 145 of the 1974 Act to include 'debt administration' as a type of ancillary credit business. 'Debt administration' means the taking of steps to perform duties under a consumer credit or consumer hire agreement on behalf of the creditor or owner, or to exercise or enforce rights under such an agreement on behalf of the creditor or owner (so far as these steps do not constitute debt collecting). As a consequence, people carrying on a business of debt administration will need to be licensed.

Clause 25: Credit information services

55.     Clause 25 amends section 145 of the 1974 Act to include provision of 'credit information services' as a type of ancillary credit business. 'Credit information services' cover those businesses that help individuals to locate and correct records relating to their financial standing held by credit reference agencies and others in the credit and hire industries. As a consequence, people providing credit information services as part of their business will need to be licensed.

Clause 26: Enforcement of agreements by unlicensed trader etc

56.     Clause 26 amends sections 40(1) and (2) of the 1974 Act to provide that a regulated consumer credit or hire agreement is unenforceable by a person acting in the course of a consumer credit or hire business who is not licensed to carry on a consumer credit or a consumer hire business of a description which covers the enforcement of the agreement. In addition, as under the current section 40, the new section 40(1A) provides that a regulated agreement is unenforceable if the creditor or owner who made the agreement did so in the course of a consumer credit or a consumer hire business but was not licensed at that time to make the agreement. Where a person has made an agreement without being licensed, that person may apply to OFT for an order to treat him as if he had been licensed to make the agreement.

57.     Subsections (8) and (9) of the amended section 40 ensure that a person who is not required to have a licence under section 21(2) or (3) of the 1974 Act to carry out the acts referred to in sections 40(1) and (1A) is not caught by these provisions.

APPLICATIONS FOR LICENCES AND FITNESS TO HOLD A LICENCE ETC.

Clause 27: Charge on applicants for licences etc.

58.     Clause 27 inserts a new section 6A after section 6 of the 1974 Act. Section 6A requires applicants for licences (or for licence renewal) to pay to OFT such charge as OFT specifies by general notice towards OFT's costs of carrying out its functions under the 1974 Act. OFT may specify different charges for different classes of persons, including no charges. OFT must obtain the consent of the Secretary of State and HM Treasury before specifying a charge.

Clause 28: Applications for standard licences

59.     Clause 28 inserts a new section 24A after section 24 of the 1974 Act. Section 24A deals with applications for standard licences. The purpose of the new section 24A is to give OFT power to manage the application process in a more efficient way by requiring people to specify in applications for licences what businesses they want the licence to cover. An applicant must specify whether he wants a licence covering one or more of consumer credit business, consumer hire business and ancillary credit business generally or a licence which only covers one or more descriptions of business within any of these broad types of business. It is OFT which will specify the descriptions of business within the types of business specified in subsection (4) that applicants may use in their applications. Under section 25(1) to (1AD) of the 1974 Act, as amended by Clause 29, if an applicant satisfies OFT that he is fit to do everything he has applied for, he is entitled to a licence to do that. If not, there is power for OFT to issue him with a more limited licence.

Clause 29: Issue of standard licences

60.     Clause 29(2) amends section 25 of the 1974 Act specifically to require OFT in determining fitness to have regard to the skills, knowledge and experience (in relation to consumer credit, consumer hire or ancillary credit business) of the applicant and anyone who will work for him under that licence, and the practices and procedures that will be implemented in connection with the business, in addition to other matters that are currently set out in the section. Those matters include evidence that the applicant or an associate:

• has committed an offence involving fraud or violence;

• has contravened provisions of the 1974 Act, Part 16 of FSMA (so far as it relates to the new consumer credit jurisdiction of FOS) and any other laws relating to consumer credit (or the equivalent in another EEA state);

• has practised discrimination; or

• has engaged in business practices, which appear to OFT to be deceitful, oppressive, unfair or improper (whether unlawful or not).

Clause 30: Guidance on fitness test

61.     Clause 30 inserts a new section 25A after section 25 of the 1974 Act. Section 25A requires OFT to prepare and publish guidance as to the way it determines the fitness of a person to hold a licence. OFT may revise any guidance on fitness. OFT must consult such persons as it thinks fit in preparing the guidance and publish it in a way that brings it to the attention of those likely to be affected by it. OFT must have regard to the latest published guidance in carrying out its licensing functions.

Clause 31: Variation of licences etc.

62.     Sections 30 and 31 of the 1974 Act give OFT the power to vary licences on application or compulsorily. Section 32 gives OFT the power to suspend or revoke licences. Clause 31 makes consequential amendments to these sections arising from the new section 24A. OFT cannot extend the scope of a licence by compulsory variation.

Clause 32: Winding up of standard licensee's business

63.     Clause 32 inserts a new section 34A after section 34 of the 1974 Act. If OFT determines to renew a licence on different terms to the application, to vary it compulsorily, or to revoke or suspend a licence OFT may as part of that determination authorise the licensee to carry on specified activities (for a specified period) which it would otherwise no longer be licensed to carry on for the purpose of winding up or transferring its business. OFT may specify requirements which the licensee must comply with during the period of the authorisation failing which OFT may terminate the authorisation by notice to the licensee. Sub section (4) ensures (inter alia) that a licensee so authorised will not incur criminal liability for carrying on such activities without a licence.

Clause 33: Consequential amendments relating to sections 27 to 32

     64.     Clause 33 makes amendments to other provisions of the 1974 Act and to provisions of FSMA consequential on the introduction of the new provisions in relation to the issue of licences by OFT.

DURATION OF LICENCES

Clause 34: Definite and indefinite licences

65.     Clause 34 amends the definitions of 'standard licence' and 'group licence' in the 1974 Act and enables OFT to issue indefinite standard licences as the norm. It provides for OFT to issue licences either indefinitely or for a specified period, provided definite licences do not exceed a period prescribed by the Secretary of State, and to vary the duration of licences in certain circumstances.

66.     Section 37 of the 1974 Act, which deals with the circumstances giving rise to termination of a standard licence, is amended to enable licensees to terminate such licences by notice to OFT. OFT may specify the form and content of the notice required for a licensee to terminate such a licence.

Clauses 35 - 37: Charges for indefinite licences

67.     Clauses 35 to 37 insert new sections 28A, 28B and 28C after section 28 of the 1974 Act relating to periodic payments for indefinite licences. Holders of indefinite standard licences and original applicants for indefinite group licences shall pay OFT a periodic charge specified by general notice, which may include different provision for different cases. OFT is given the power to extend the period for a person to make payments in respect of indefinite licences if there is a good reason for doing so. Failure to pay a periodic charge in respect of a standard licence during the payment period (or extended payment period) results in the licence being terminated and details of licences terminated for this reason must be kept on OFT's public register.

FURTHER POWERS OF OFT TO REGULATE CONDUCT OF LICENSEES ETC.

Clause 38: Power of OFT to impose requirements on licensees

68.     Clause 38 inserts a new section 33A after section 33 of the 1974 Act. Section 33A provides OFT with a new intermediate power (additional to existing powers of revocation, suspension or variation of a licence) to impose requirements on licensees. OFT may impose a requirement in relation to a business carried on (or proposed to be carried on) under the licence where it is dissatisfied with any matter in connection with:

• a business being carried on, or which has been carried on, by a licensee or associate or former associate of the licensee;

• a proposal made by a licensee, or associate or former associate of the licensee, to carry on a business; or

• any other conduct of such a person,

• whether occurring before or after the person became a licensee.

69.     OFT may, by notice, require the licensee to do or not to do (or cease doing) anything specified in the notice to address the matter with which OFT is dissatisfied or to ensure that the same or similar matters do not arise. The requirement must relate to a business that the licensee is carrying on, or is proposing to carry on, under the licence. OFT may take action to impose a requirement whilst dealing with an application for a licence to be issued.

Clause 39: Power of OFT to impose requirements on supervisory bodies

70.     Clause 39 inserts a new section 33B after the new section 33A (inserted into the 1974 Act by clause 38). Section 33B deals with the power of OFT to impose requirements on the responsible person in relation to a group licence where OFT is dissatisfied with the manner in which that person is regulating or otherwise supervising, or proposes to regulate or supervise, licensees under that licence. A requirement imposed under this provision may only relate to the practices and procedures of the responsible person for regulating or otherwise supervising licensees under the licence in connection with their carrying on of businesses under the licence. A person is a "responsible person" in relation to a group licence if he is the original applicant under it and he has a responsibility (whether by virtue of an enactment, an agreement or otherwise) for regulating or otherwise supervising persons who are licensees under the licence.

Clause 40: Supplementary provision relating to requirements

71.     Clause 40 inserts a new section 33C after the new section 33B (inserted into the 1974 Act by clause 39). Section 33C(3) provides that a person cannot be required under section 33A or 33B to compensate or otherwise make amends to another person. Section 33C gives OFT the power to vary or revoke requirements on its own motion or to do so on application by the person on whom the requirement has been imposed. It gives the same rights to make an application for the variation or revocation of a requirement to a person who is named in the requirement and prevented from being employed by the person on whom the requirement is imposed, or restricted as to the activities that he may engage in as an employee, or is otherwise prevented or restricted from doing something in connection with the business under the licence (an "affected person" for the purpose of these notes).

Clause 41: Procedure in relation to requirements

• 72.     Clause 41 inserts a new section 33D after the new section 33C (inserted into the 1974 Act by clause 40). Section 33D sets out the procedure OFT must follow when imposing requirements. When it is minded to impose, vary or revoke a requirement, OFT must give a notice to any person on whom the requirement is or would be imposed and any affected person. The notice should inform him of OFT's reasons for wishing to impose, vary or revoke the requirement and invite the person to submit representations as to OFT's proposed determination to impose, vary or revoke the requirement.

73.     OFT does not need to issue a notice if the proposed determination is in the same terms as one proposed by the person on whom the requirement is or would be imposed or an affected person (so that if OFT and that person agree on the content of a proposed requirement, the notice procedure is not necessary in relation to that person).

Clause 42: Guidance on requirements

74.     Clause 42 inserts a new section 33E after the new section 33D (inserted into the 1974 Act by clause 41). Section 33E requires OFT to issue guidance as to how it exercises or how it proposes to exercise its powers in relation to the imposition, variation or revocation of requirements. OFT must have regard to this guidance in exercising its powers in relation to requirements.

Clause 43: Consequential amendments relating to requirements

75.     Clause 43 provides for a right of appeal for persons on whom a requirement is imposed and affected persons against imposition, variation or revocation of a requirement by OFT or refusal by OFT of an application by the appellant for variation or revocation of a requirement. It also deals with a number of miscellaneous issues where the 1974 Act requires amendment to take account of OFT's power under sections 33A and 33B to impose requirements on licensees etc., including that a breach of a requirement does not of itself mean the activity is unlicensed. It also provides that requirements and details of their variation will have to be recorded in the public register held by OFT.

POWERS AND DUTIES IN RELATION TO INFORMATION

Clause 44: Provision of information etc. by applicants

76.     Clause 44 deals with the information applicants under the 1974 Act may be required to provide in connection with their application. OFT may require additional information or documents that are relevant to the application, before the application is determined. Where an applicant has made an application to OFT, but it has not been determined, and OFT has published a general notice specifying any additional information required to be provided in connection with future applications then the applicant whose application is pending must provide OFT with that additional information.

77.     If any information or document provided by an applicant in relation to his application is superseded or otherwise affected by any change in circumstances, or if any errors come to light during the period from when the application was made but before its determination, the applicant must notify OFT within 28 days of the information or document being superseded, the change in circumstances occurring, or the applicant becoming aware of the error or omission. This does not apply to clerical errors that do not affect the substance of the document, or anything that the applicant must notify OFT about under section 36 (duty to notify changes).