Consumer credit
Applying for an enforcement order

On 6 April 2007 several provisions of the Consumer Credit Act 2006 came into force. Under the 1974 Act, if a creditor failed to comply with the statutory requirements of the Act, the credit agreement would be unenforceable, unless the creditor was able to obtain a court order permitting enforcement. In certain circumstances the creditor would be unable to seek such an order from the court. This provision applied even to minor errors.

The 2006 Act removes this restriction and in relation to agreements entered into after 6 April 2007, a creditor will be able to apply for an enforcement order in all circumstances. Under the new provisions the court will be obliged to make an enforcement order unless it is dismissed. When considering whether to dismiss the application the court will look at the prejudice caused to the borrower and the degree of culpability for the error. When making the enforcement order the court has power to reduce or discharge any sum due under the agreement, to attach conditions to the making of the order or to amend any term of the agreement.

From 6 April 2007 the definition of an individual under the Act is narrowed. As a result, a credit agreement entered into with a partnership of more than three partners will not be covered by the Act. Although this change is not retrospective some of the provisions of the 2006 Act will only apply to partnerships which fall within the new definition.

Subject to transitional provisions, the provisions relating to extortionate credit bargains are replaced by the concept of unfair relationships. Under the new provisions a court can make an order where it finds that the relationship between a creditor and debtor under a credit agreement is unfair. When establishing whether the relationship is unfair, the court can consider the terms of the agreement, the way in which the creditor has enforced or exercised any of its rights and any other action taken by either the creditor or someone acting on its behalf. The court has a very wide discretion.

If the court finds that the relationship is unfair, the orders it can make are wide reaching and include requiring the creditor to repay any sum paid by the debtor by virtue of the credit agreement, as well as reducing the sums due under the agreement ordering the creditor to refrain from certain activities.

There is a transitional period of one year which commenced on 6 April 2007. During this period, the court will not hear any application under the unfair prejudice provisions, in relation to agreements made prior to 6 April 2007 during the transitional period. If an agreement made prior to 6 April 2007 is completed or settled within the transition period, the debtor will be unable to make an application after the transitional period has ended. In the meantime, the existing extortionate credit bargain provisions will remain in place in relation to agreements which complete within the transitional period.

In April 2008 further provisions of the Consumer Credit Act 2006 will come into force including:

1. The financial limit of £25,000 will be removed and unless an agreement falls into an exemption, all credit agreements with individuals will be covered by the legislation.

2. Creditors will be required to give periodic notices to borrowers who are in arrears under regulated agreements. Failure to comply with these requirements will result in a creditor being unable to enforce its agreement until it has complied with them.

3. Lenders will need to provide customers under regulated agreements with a statement of account on a yearly basis. If the lender fails to do this it will be prevented from enforcing the agreement until it has complied with its obligations.

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