The Consumer Credit (Total Charge for Credit, Agreements and Advertisements) (Amendment) Regulations 1999

Explanatory Note

(This note is not part of the Regulations)

These Regulations amend the Consumer Credit (Total Charge for Credit) Regulations 1980 (“the 1980 Regulations"), the Consumer Credit (Agreements) Regulations 1983 (“the 1983 Regulations") and the Consumer Credit (Advertisements) Regulations 1989 (“the 1989 Regulations").

The Regulations make such amendments to the 1980 Regulations as are required to implement Directive 98/7/EC of the European Parliament and of the Council (O.J. No. L101, 1.4.1998, p. 17), which amended for the second time Council Directive 87/102/EEC on the approximation of the laws, regulations and administrative provisions of the member States concerning consumer credit (O.J. No. L42, 12.2.1987, p. 48) (“the Consumer Credit Directive").

The Regulations change the way in which the rate of the total charge for credit (APR) is to be calculated by replacing the three methods of calculation in the 1980 Regulations with the single method required by Directive 98/7/EC (regulation 3(k) and (m)). The resulting rate is required to be rounded to one decimal place (regulation 3(i) and (j)).

The Regulations amend the 1980 Regulations so that the rate of the total charge for credit in relation to an actual or prospective agreement may no longer be taken to be the applicable rate set out in the “Consumer credit tables" (Parts 1 to 15) published by Her Majesty’s Stationery Office (regulation 3(l)).

The amendments made to implement Directive 98/7/EC extend to credit agreements which are outside the scope of the Consumer Credit Directive.

The Regulations make consequential amendments to the 1980, 1983 and 1989 Regulations (regulations 3(a)(ii), 4(b) to (d) and 5).

The Regulations also amend the 1980 Regulations to change, in one respect, the way in which the total charge for credit is to be calculated in relation to credit agreements which are intended primarily to finance the acquisition or retention of land or intended to finance the renovation or improvement of a building and in relation to other credit agreements secured by a mortgage (or, in Scotland, a standard security) on land (regulation 3(a)(i), (b), (c), (d) and (n)). Where such an agreement (a “land-related agreement") provides for the possibility of a variation of the rate of interest in consequence of the occurrence after “the relevant date" (which is defined in regulation 1(2) of the 1980 Regulations) of an event which is certain to occur and of which the date of occurrence (or the earliest date) can be ascertained when the agreement is made, it is to be assumed that the variation will indeed take place when the event occurs. And where the amount of such variation cannot be ascertained when the agreement is made, assumptions are provided which require it to be calculated by reference to the creditor’s standard variable rate in operation at the date on which the agreement is made.

Consequential amendments are made to the 1983 Regulations to require the creditor’s standard variable rate to be stated in regulated agreements (and, in certain circumstances, in modifying agreements), together with an explanation of what that rate is and a statement that it has been taken into account in calculating the APR (regulation 4(a) and (e)).

Finally, the following amendments are made to the 1980 Regulations in order to align their requirements more closely with those of the Consumer Credit Directive, as amended by Council Directive 90/88/EEC (O.J. No. L61, 10.3.1990, p. 14) (though the amendments also affect credit agreements to which the Consumer Credit Directive does not apply).

First, the 1980 Regulations are amended so that certain insurance premiums are required to be included in the total charge for credit, and all others are required to be excluded (regulation 3(e), (f), (g) and (h)). Those required to be included are premiums payable in respect of insurance arrangements required by the creditor for the sole purpose of ensuring that all or part of the credit, interest and other charges is repaid in the event of the debtor’s death, invalidity, illness or unemployment.

Second, the 1980 Regulations are amended so that charges for guarantees are required to be excluded from the total charge for credit, with the exception of charges for one specified type of guarantee which are required to be included (regulation 3(g)). The specified type of guarantee is one required by the creditor to ensure that all or part of the credit, interest and other charges is repaid in the event of the debtor’s death, invalidity, illness or unemployment.

Third, the 1980 Regulations are amended to provide for the exclusion from the total charge for credit of charges for the transfer of funds and charges for keeping an account intended to receive repayments of credit and payments of other charges, with exceptions (regulation 3(g)).

A Regulatory Impact Assessment of the costs and benefits which will result from these Regulations has been prepared. Copies have been placed in the libraries of both Houses of Parliament and can also be obtained from the Consumer Affairs Directorate of the Department of Trade and Industry, Room 407, 1 Victoria Street, London SW1H 0ET.