Part one of CCA regulation

Part one of CCA regulation


When it comes to the issue of regulation, most people automatically think of FSA regulation, but what about Consumer Credit Act (CCA) regulation? Clive Whitfield-Jones, Partner at Jeffrey Green Russell Solicitors, offers us an overview on the CCA in the first in this new series…


Short term mortgage lending falls into two broad categories:

-      Lending to individuals under a consumer credit agreement, that is as an agreement between an individual debtor and a creditor by which the creditor provides the debtor with credit of any amount. A consumer credit agreement is a regulated agreement under the Consumer Credit Act 1974 (“CCA”), regardless of amount or purpose, unless it is made under a CCA exempt agreement. The definition of 'individual' includes certain partnerships and unincorporated bodies.

-      Corporate lending: Broadly, lending which is not lending to individuals under a consumer credit agreement. Corporate lending is not subject to CCA or FSA regulation.

Let’s look at some types of consumer credit agreement of most relevance to short term mortgage lenders.

Regulated mortgage contracts: A “regulated mortgage contract” is broadly a contract under which:

(i) a person (“the lender”) provides credit to an individual or to trustees (“the borrower”); and

(i) the obligation of the borrower to repay is secured by a first legal mortgage on land (other than timeshare accommodation) in the United Kingdom, at least 40 per cent of which is used, or is intended to be used, as or in connection with a dwelling by the borrower or (in the case of credit provided to trustees) by an individual who is a beneficiary of the trust, or by a related person.

A regulated mortgage contract is exempt from CCA regulation. Entering into, administering, arranging and advising on regulated mortgage contracts, as well as the activity of agreeing to carry on any such activity, are regulated mortgage activities. The full rigour of FSMA authorisation and mortgage regulation applies.

CCA regulated agreements: Compliance is a very extensive and complex subject. The CCA and regulations made under it deal, for example, with consumer credit licensing, advertising, the total charge for credit and APR, the form and content of regulated agreements, security, cancellation and withdrawal, linked transactions, information and notices, early settlement and termination, enforcement, criminal offences and unfairness.

CCA exempt agreements: Numerous types of consumer credit agreement are exempt from full CCA regulation (although still subject to the unfair relationship provisions of the CCA). Three exemptions are particularly important to short term mortgage lenders.

Loans for business purposes: The CCA does not regulate a consumer credit agreement where the creditor provides credit exceeding £25,000 provided the agreement is entered into by the borrower wholly or predominantly for the purposes of a business, profession or trade carried on, or intended to be carried on, by the borrower.

Loans to high net worth individuals: Loans to a high net worth individuals are exempt from CCA regulation if the detailed statutory conditions are met. For example, a specified person (usually the borrower’s accountant) must make a statement of high net worth regarding the borrower in the prescribed form confirming that the borrower received during the previous financial year an income of not less than £150,000, or had throughout that year net assets (excluding, among other assets, the borrower’s primary residence) of not less than £500,000.

Loans secured on investment properties: A loan is exempt where:

-    Sums due under the loan are secured by a land mortgage, and

-    Less than 40 per cent of the land is used, or is intended to be used, as or in connection with a dwelling by the borrower or by a person connected with the borrower (for example, a spouse or close relative).

This exemption typically applies to investment properties especially buy-to-let, although the borrower’s purpose in taking the loan appears to be irrelevant.

In the next article, we’ll look in more detail at pitfalls of the business purpose exemption.

Clive is the Partner in charge of lender services at Jeffrey Green Russell and has many years of experience in property and secured lending. He has knowledge of property finance including short term lending, buy-to-let finance, mortgage recoveries and receivership. If you'd like to get in touch with Clive you can contact him on 0207 339 3999.

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