Exempt agreements

The Consumer Credit Act 1974 regulates most consumer credit and consumer hire agreements with individuals - which is defined as including sole traders and partnerships of two or three partners.

Until 6 April 2008, agreements were excluded from regulation if the amount of credit or hire exceeded £25,000. However, this financial limit was removed for all new credit and hire agreements by the Consumer Credit Act 2006. Pre-existing agreements above £25,000 remain outside CCA regulation. 

There are a number of exemptions from the 1974 Act. These are principally set out in section 16 and the Consumer Credit (Exempt Agreements) Order 1989 as amended.
In particular, there are exemptions for:

• first charge mortgages regulated by the Financial Services Authority
• some second charge mortgages, depending upon the nature of the agreement and the identity of the lender
• agreements for goods or services where the consumer has to repay the credit within one year in four payments or less
• charge cards and similar agreements where the consumer has to repay the outstanding balance in full at the end of each period
• credit union agreements where the APR does not exceed 26.9 per cent
• credit agreements offered to a limited group of borrowers where the APR does not exceed a specified 'low cost' rate (set by reference to average base rates)
• certain agreements relating to overseas finance.

The 2006 Act introduces two new categories of exempt agreement:

• lending to high net worth individuals, with net income exceeding £150,000 or net assets exceeding £500,000 and supporting documentation
• business lending over £25,000, where the loan is wholly or predominantly for business purposes (business lending up to £25,000 remains regulated).

These new exemptions are set out in sections 16A and 16B of the 1974 Act (as amended) and the Consumer Credit (Exempt Agreements) Order 2007 - see the Office of Public Sector Information website.

In addition, the Department for Business, Enterprise and Regulatory Reform (BERR) is proposing to make a Legislative Reform Order (LRO) which, subject to Parliamentary approval, will introduce a further exemption in respect of buy-to-let lending.

Such loans will be exempt from regulation unless they are secured on the borrower's principal place of residence, or the borrower or a relative intends to occupy at least 40 per cent (by land area) of the buy-to-let property at any time.

The proposed LRO may be found on the BERR website.

If there are any queries these should be addressed to credit.guidance@oft.gsi.gov.uk.

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