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Consumer Credit Act 1974 (as amended) What does it cover? The Consumer Credit Act is the main piece of law covering credit. The most common use of credit that you are aware of is probably a ‘credit card.’ Do you know the difference between a credit card and a debit card? That is your first challenge! You may also come across credit when people purchase cars, take out loans and mortgages to purchase a house. In its simplest form, it is all about borrowing money, and paying it back at a later date with interest, which is the profit the borrower makes from you for borrowing the money to you in the first place. People also use credit when they have car insurance policies and pay them monthly, as it helps to spread the cost of the insurance if they cannot pay for it in a lump sum. Types of finance Hire Purchase – this is usually used for things like expensive cars, TVs etc. For example, you have decided to buy a new car, but you don’t have any savings to buy one, the finance company will buy the car from the garage for you, and you have to pay them a certain amount back each month until you have paid off the money. Even though you get to keep the car, you are not the legal owner until you pay the finance company back the money they paid for the car and their interest. Therefore you are hiring the car off them until you make your final payment and ‘purchase’ the vehicle. The contract is between you and the finance company, not the garage. Credit Card – usually these have limits on the amount of money that you can spend on them, and you receive a bill at the end of each month asking for payment. If you do not settle the full balance, then you usually pay interest on the amount of money that you still owe to your credit card company and are required to make a minimum payment every month off the amount you owe. 24 Fixed sum loan agreement – this is the type of credit that people have to pay off their car insurance or to buy items such as a sofa. They are loans arranged by shops and Traders to assist people to buy goods and services and are for a fixed amount. Have you seen adverts from furniture stores saying you can buy a sofa now and not pay anything for a year? These will usually involve a fixed sum loan agreement. Consumer Credit Act – the important parts Section 75 – this section of the Act gives us more protection when we are purchasing goods and services which cost over £100. If a consumer has purchased goods or services on a credit card or a fixed sum loan agreement, then this section applies. If the Trader breaches any section of the law, goes out of business or does not complete the contract, you can pursue the finance company for a remedy. You have the same rights against the finance company as you would have against the Trader as they are ‘jointly and severally liable.’ Section 57 – this section gives you the right to cancel the contract until both parties have signed it. Once both parties have signed the contract is called an ‘executed agreement’ and it binding on both parties and cannot be cancelled. Credit Reference Agencies When people use credit, a record is kept on their credit file. When applying for credit, most lenders will be registered with one of the three credit reference agencies and will check your credit file to help them make a decision about whether to provide you with the credit. The credit reference agencies are: Call Credit Experian Equifax 25 Test yourself or your team Question 1 What is a hire purchase agreement? Question 2 What is the difference between a credit card and a debit card? Question 3 What is the name of the main Act covering credit? Question 4 Which two types of finance agreement discussed would be covered by Section 75? Question 5 How much do you have to spend for Section 75 to apply? Question 6 What does Section 57 give parties the right to do? Question 7 What type of organisation are the three agencies that creditors check a person’s credit file with? Question 8 Name the three agencies. 26