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Joint Committee on Statutory Instruments Forty-Seventh Report


Memorandum from the Department of Trade and Industry


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 credit which:

    ". . . are granted at rates of charge below those prevailing in the market;


    . . . are not offered to the public generally."

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 unions.

2nd November 1998

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