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OFT seeks comment on 'unfair relationships' guidance

106/06    29 June 2006

The OFT today published for consultation guidance on how provisions of the Consumer Credit Act 2006 (the Act) may be used to protect consumers.

Download Unfair relationships: draft guidance - consultation document (pdf 204 kb).

The Act will enable borrowers to challenge credit agreements in court on the grounds that the relationship between the parties is unfair. The new 'unfair relationships' test will replace the current concept of extortionate credit bargains.

In addition, the OFT and other enforcers will be able to take enforcement action under Part 8 of the Enterprise Act where unfair relationships harm the collective interests of consumers.

The draft guidance provides advice to businesses, their advisers, and consumer organisations, as to how the OFT proposes to use Part 8 powers in relation to unfair relationships.

In acting under Part 8, the OFT's aim will be to improve trader behaviour and protect consumers generally from abuses in the credit market. We cannot seek redress for individual consumers.

John Fingleton, OFT Chief Executive, said:

'The new unfair relationships provision provides important new protection for borrowers. The draft guidance sets out how we expect to exercise our enforcement powers in relation to it, so that we may assist business in complying with the new law. We look forward to receiving comments from anyone with an interest in the new provisions.'

The consultation closes on 29 September.

NOTES

1. The Consumer Credit Act 2006 received Royal Assent on 30 March 2006.

2. The new Act updates and augments the 1974 Consumer Credit Act. It aims to create a fairer, clearer and more competitive consumer credit market and to improve protections for consumers.

3. The provisions relating to unfair relationships between borrowers and lenders are due to come into force in April 2007.

4. The Act provides that a court may determine that a relationship is unfair to the borrower because of:

• any of the terms of the credit agreement or a related agreement
• the way in which the lender has exercised or enforced its rights under the agreement or a related agreement, or
• any other thing done (or not done) by or on behalf of the lender either before or after the making of the agreement or a related agreement.

5. The OFT is required to publish advice and information indicating how it expects the new provisions to interact with Part 8 of the Enterprise Act 2002. We are consulting on a draft of such guidance.

6. Part 8 came into force on 20 June 2003. It improves consumer protection by giving OFT and certain other enforcers (including trading standards services) powers to obtain undertakings from, and where appropriate to seek court orders against, traders that breach specified consumer protection legislation including the Consumer Credit Act. Action can be taken where the breach harms the collective interests of consumers.

7. The 2006 Act also broadens the scope for consumers to take disputes to the Financial Ombudsman Service (FOS), which will decide cases on the basis of what is 'fair and reasonable'.

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