Business Law: Beware of credit pitfalls, warns Max Harnden

SO-CALLED “consumer” credit regulation is an area of law which businesses cannot afford to ignore.

Lots of businesses overlook the UK Consumer Credit regime on the basis that “we don’t deal with consumers. We only deal with other businesses, so it’s nothing to do with us”.

Admittedly, the title of the Consumer Credit Act 1974 is confusing, but it does apply to dealings with some businesses as well as with consumers.

For example, your business will need to consider the consumer credit regime if you provide loans, or offer instalment payments or hire goods to individuals (including sole traders), to partnerships with three or fewer partners, or to unincorporated associations (such as social clubs and societies).

In most cases, it does not matter if you offer these credit facilities interest-free or if your business does not normally enter into those types of arrangements; your business can still be caught by consumer credit laws.

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This is too important to ignore as non-compliance poses a significant risk to your business. This is because providing or arranging consumer credit without a licence from the Office of Fair Trading is a criminal offence and can result in a fine and/or imprisonment.

In addition, businesses cannot enforce credit agreements if they are not licensed to provide consumer credit, which means that they may not be able to get their goods or their money back from the debtor.

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Furthermore, credit agreements are heavily regulated. In order to be enforceable, consumer credit agreements must contain certain information, they must be set out in particular way and there are various procedural formalities relating to the way in which they are formed which must be followed.

Many loans, instalment payments and hire agreements will be caught by the consumer credit regime. However, there are various exemptions which might apply to your agreements. For example, business credit over a certain sum or credit extended to high net worth individuals might be exempt but in order for the exemptions themselves to apply, certain formalities must be followed.

The consumer credit regime also impacts on other ancillary credit services such as introducing people to credit, debt counselling and debt adjusting, so it is important to work up an awareness of those implications.

Consumer credit is a highly technical and heavily regulated area of law. If you are in any doubt about whether or not the regime applies to you, you need to find out.

: : Max Harnden is a business law partner at Gotelee Solicitors.

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