Moneylenders
Moneylenders are often used by people who cannot get
credit from more traditional sources. They are usually
prepared to lend without security and, as a result, their
interest charges can be very high.
Pawnbroking
This is one of the oldest ways of lending money. A
pawnbroker will advance money for a short period of
time, and in return will take possession of goods (for
example, jewellery) as security. If the loan and interest
are repaid, the goods are returned to the borrower; if
the pawn is not redeemed, the goods may be sold by the
pawnbroker.
Mortgage
Building societies, banks and local authorities are willing
to lend money to help people buy their own homes. The
mortgage is the interest taken by the lender in the prop-
erty which acts as security for the loan.
Consumer Credit Act 1974
Background to the Act
The Crowther Committee, which had been set up in
1965 to investigate consumer credit, found that our
credit laws were in a mess. The rules, having developed
in a piecemeal way, were to be found in a large number
of statutes and in the common law. Different rules had
been created for different kinds of credit, and in some
areas the consumer was inadequately protected.
The Committee recommended the passing of two
pieces of legislation. The government rejected the need
for a Lending and Security Act, which would have set
up, amongst other things, a security register. However,
it accepted the argument for a Consumer Sale and
Loan Act to extend and improve the protective rules,
which already existed in relation to HP. This proposal
became the Consumer Credit Act 1974. It replaces
most of the earlier credit legislation with the excep-
tion of the Bills of Sale Acts 1878 and 1882 and the Hire
Purchase Act 1964, Part III. The Consumer Credit Act
1974 has been overhauled by the Consumer Credit Act
2006.
For the rest of this chapter, section references are to
the 1974 Act unless otherwise indicated.TerminologyThe Act introduced a new set of terms, the most import-
ant of which are explained below.1 Debtor-creditor-supplier agreement (DCSA) (s 12)
and debtor-creditor agreement (DCA) (s 13).A DCSA
arises where there is a connection between the creditor
and the transaction for which the finance is being pro-
vided. The creditor and supplier of the goods or services
for which the credit is being made available may be the
same person. Where they are different people, it will be
a DCSA if there is an arrangement between the supplier
and creditor. Examples include HP, credit cards and
trading checks. If there is no connection between the
creditor and any supplier, it will be a DCA. An overdraft
from a bank to be spent as the customer wishes is an
example.2 Restricted-use credit agreement and unrestricted-
use credit agreement (s 11).If the debtor is free to use
the credit as he or she pleases, e.g. overdraft, it will be an
unrestricted-use credit agreement. Where the credit is
tied to a particular transaction, it will be restricted-use
credit. Examples include HP, credit sale, shop’s budget
account, check trading and the use of credit cards to
obtain goods and services.3 Fixed-sum credit and running-account credit (s 10).
Fixed-sum credit is where the agreement is made for a
specific sum of credit (e.g. HP, bank loan). Running-
account credit is sometimes referred to as revolving
credit. It is where the debtor can receive cash, goods
or services from time to time to an amount which does
not exceed his credit limit (e.g. overdraft, shop’s budget
account).
4 Credit tokens (s 14).The definition of a credit token
covers credit cards, trading checks and vouchers, but not
cheque guarantee cards.5 APR. The Act promotes its primary objective of ‘truth
in lending’ by creating a standard measure of the true
cost of borrowing, which is the annual percentage rate
of charge (APR). This is intended to allow the consumer
to make a fair comparison between different credit
deals. The first step in calculating the APR is to work out
the total charge for credit. The figure includes all thePart 3Business transactions