Chapter 13Creditcosts involved in borrowing the money such as interest
charges and all other costs associated with the credit
transaction, e.g. arrangement fees or insurance. The total
is then expressed as an annual percentage rate (APR),
calculated according to complex regulations made
under s 20. The regulations set out a statutory formula
for calculating the APR. The method of calculating APR
is very technical and involves the use of complex
concepts and mathematical methods. The Office of Fair
Trading publishes a booklet, Credit Charges and APR,
which explains how the APR is calculated, with illustrat-
ive examples of calculations based on typical credit
agreements.
Agreements covered by the Act
Most of the Act only applies to ‘regulated agreements’.
Some agreements are ‘partially regulated’ while other
agreements are said to be ‘exempt’.
Regulated agreements
Two types of agreement are regulated by the Act – con-
sumer credit agreements and consumer hire agreements.
1 Regulated consumer credit agreement. With effect
from 6 April 2008 this is a consumer credit agreement
between an individual (the debtor) and any other per-
son (the creditor) by which the creditor provides the
debtor with credit of any amount (s 8). Individuals
include sole traders and partnerships of two or three
partners. (If the agreement was made before 6 April
2008, it will be regulated if it is a personal credit agree-
ment, where the credit does not exceed £25,000. It will
be personal credit if the borrower is an individual or
partnership (of any size), but not a company.) Credit is
defined in s 9 as a ‘cash loan or any other form of finan-
cial accommodation’. This covers HP, conditional sale,
credit sale, loans, overdrafts, credit cards, shop budget
accounts and trading checks.
The monetary limit which applies to agreements con-
cluded before 6 April 2008 refers to the credit given. It
does not include any deposit or interest charges. The
total price paid, therefore, may exceed the limit but the
agreement could still be regulated, as explained in the
example below.
2 Regulated consumer hire agreement.This is an
agreement under which goods are hired, leased, rented
or bailed to an individual, which is capable of lasting
more than three months (s 15). Consumer hire agree-
ments entered into before 6 April 2008 will be regulated
if the amount does not exceed £25,000.
A House of Lords case provides an interesting illus-
tration of how the framework of regulation applies in
practice.389
Example
Cash price of the goods =£27,000 paid for by:
£2,500 deposit
£24,500 credit
£750 interest
Total credit price =£27,750
Although the debtor pays a total of £27,750, the credit
obtained is only £24,500, and so if the agreement was
made before 6 April 2008 it will be regulated.Dimondv Lovell(2000)The case arose out of a car accident in which Mr Lovell
drove into the back of Mrs Dimond’s car. While Mrs
Dimond’s car was being repaired, she hired a replace-
ment car from 1st Automotive Ltd. 1st Automotive spe-
cialises in hiring cars to drivers whose cars have been
damaged by the negligence of other drivers and are off
the road being repaired. 1st Automotive does not ask
drivers, like Mrs Dimond, to pay anything until the claim
for damages against the negligent driver is settled.
Mr Lovell’s insurer, the Co-operative Insurance Soci-
ety (CIS), paid Mrs Dimond’s repair bills promptly, but
it refused to pay 1st Automotive’s hire charges, which
amounted to £346.63. The CIS put forward two defences.
The first was that the agreement between Mrs Dimond
and 1st Auto-motive was a regulated consumer credit
agreement but it was unenforceable because it did not
comply with the requirements of the Consumer Credit
Act. If it was unenforceable, Mrs Dimond did not owe 1st
Automotive £346.63 and, therefore, she could not re-
cover that amount from Mr Lovell as she had not suf-
fered any loss. The second line of defence was that
Mrs Dimond had not mitigated her loss. The ‘spot rate’
for car hire was considerably lower than 1st Automotive’s
charges. The House of Lords held that the agreement
entered into by Mrs Dimond with 1st Automotive was
a regulated consumer credit agreement. The agreement