Clause 2 - Removal of financial Limits etc.

Consumer Credit Bill – in a Public Bill Committee at 9:25 am on 25 January 2005.

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Question proposed, That the clause stand part of the Bill. 

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

Clause 2 removes the current financial limits in the 1974 Act. The financial limit defines those consumer credit agreements and consumer hire agreements that are protected under the Act. Only agreements that provide credit or that require hire payment of up to the £25,000 limit are protected. The limit was initially £5,000, which was a considerable sum in 1974. It was raised to £15,000 in 1985, and the current £25,000 limit was introduced in 1998. To many consumers, £25,000 is no longer a substantial amount of borrowing; the average debt consolidation loan now exceeds £25,000. Therefore, subsections (1) and (2) will remove the financial limit that applies to consumer credit agreements and consumer hire agreements. In future, all agreements, for whatever amount, will be subject to regulation under the Act, unless specifically exempted. Exemptions already exist under section 16 of the 1974 Act. The Bill proposes additional exemptions in clause 4 for business borrowing and business hire agreements that exceed £25,000, and in clause 3 for high net worth borrowers and hirers.

The effect of subsection 1(a) is to remove the definition of a ''personal credit agreement'' from the 1974 Act. That term is used in sections 8(1) and 10(1) of the Act to refer to agreements providing credit to an individual for any amount. The term ''consumer credit agreement'' is used to identify credit agreements in which credit does not exceed £25,000. If the financial limit is abolished, those distinctions become redundant.

Subsection (3) extends the provisions of the Act that regulate the form and content of credit advertisements to regulated credit agreements, regardless of the sum involved and regardless of whether the creditor or owner requires security in respect of that agreement.

Question put and agreed to.

Clause 2 ordered to stand part of the Bill.