Memorandum from the Department of Trade and Industry
1998 (S.I. 1998/1944)
1. The Committee has requested
that the Department submit a memorandum on the following point:
The substituted article
4 excludes regulation by the Act of consumer credit agreements
which satisfy two conditions, viz. (a) they must be "of
a type offered to a certain class or classes of persons"
and not offered to the public generally; and (b) their terms for
interest must be such that the total charge does not exceed the
specified rate. Explain, as regards condition (a), what sorts
of "persons" are contemplated and why the condition could not have been framed
with some particularity.
2. The condition in substituted
article 4(1)(a) reflects Article 2.2 of Council Directive 87/102/EEC
of 22 December 1986 for the approximation of the laws, regulations
and administrative provisions of the Member States concerning
consumer credit (as amended by Directive 90/88/EEC and 98/7/EC).
Copies of Directive 87/102 and 90/88/EEC are attached. Directive
98/7/EC is not material.
3. The Directive requires Member
States to impose certain requirements in respect of credit agreements
whereby a person grants credit in the course of business to a
consumer. The Directive is implemented in the UK by the Consumer
Credit Act 1974 and secondary legislation made under it.
4. Article 2.2 of the Directive
permits a Member State, in consultation with the Commission, to
exempt from the application of the Directive certain types of
5. Prior to its amendment by
the 1998 Order, the Consumer Credit (Exempt Agreements) Order
1989 did not expressly reflect the second condition in Article
2.2. Low costs loans, by their nature, tend not to be available
to the public generally, but it was thought that it would be appropriate
to make the condition explicit in the 1989 Order.
6. Government policy is that,
within the constraints of Article 2.2 of the Directive, loans
granted at or below the charges mentioned in article 4(1)(b) as
substituted by the 1998 Order should be exempt from the provisions
of the Consumer Credit Act. The words "offered
to a certain class or classes of person"
were included to clarify the meaning of "not
offered to the public generally".
7. The Government did not want
to limit the scope of the exclusion by specifying particular classes
of person, loans offered to whom would qualify for exemption.
The sort of "classes"
contemplated are employees, or members of credit unions or trade
2nd November 1998