2.0 Be able to apply the legal rules on
consumer credit agreements and agency
 2.1 Differentiate between types of credit agreements
 2.2 Apply rules, termination rights and default notices
in a given scenario
 2.3 Differentiate between the different types of agent
and their characteristics
 2.4 Evaluate the rights and duties of an agent
CONSUMER CREDIT AGREEMENTS
 These are contracts where a consumer obtains a loan
or buys on credit from a business to be repay over a
period of time.
 The giver of the credit (creditor) renders a service and
is repaid from the interests which the borrower is
expected to pay
 To protect the interest of the consumer, legislation has
been put in place to regulate the contracts and the
most prominent is the Consumer Credit Act 1974 as
amended by the Consumer Credit Act 2006
Types of Credit
 Hire Purchase; This arise where a consumer takes
possession of property paid for by the creditor (the real
owner) and the consumer is expected to pay the
creditor over an agreed period of time.
 Such goods cannot be transferred to a third party as
the consumer does not have ownership of the goods as
confirmed in Helby v Matthews 1895 (pawn broker case
where goods where retrieved by owner)
 At the end of the agreement, the hirer may exercise
the right to buy by paying a token sum
Conditional Sale
 This method of credit requires the consumer to buy
the item at the end of the contract
 Hence the consumer is able to pass good title to a third
party
 In case of a breach the creditor may still retrieve the
property
 It shares all the other features of a Hire Purchase but
turns to be less popular
Credit Sale
 In this method of credit, possession and ownership
passes from the start of the credit contract to the
consumer
 The consumer can always transfer ownership to a third
party
 In case of a default in the loan by the consumer, the
creditor may sue for the debt and could retrieve any
property not solely the one on the credit agreement
Bank Loan
 This could take various forms including
 Overdraft, where the bank allows the customer the right to overdraw
their account up to a certain limit and interest is payable only on the
sum overdrawn. This could be referred to as a running account credit
 Ordinary loan, only available to clients of the specific bank for any
specified purpose with a separate account to repay the loan. Variable
interest rates are charged. This could be referred to as a fixed term
credit since interest for the whole loan is payable from start of the
agreement
 Personal loan, much more expensive in terms of interest rates as
could be extended to non-customers. It is also a fixed term credit
Credit Cards
 It allows holders to obtain goods and services or cash
advance on credit. The three most prominent are;
 Bank credit cards, usually attached to specific banks,
however anyone can apply for them. Every month the
holder is to pay at least 5% or £5 which every is higher.
Repayment in full monthly will attract no interest
 Charge cards, may not have a set limit but must be repaid
in full every month
 Retailers’ credit cards, may restrict use to specific
suppliers. All other features are same like bank Credit card
Shop Budget Account
 Large shops sometimes give out revolving credit which
is another example of a running account credit
 Here the consumer is given an account with the shop
to spend up to a certain limit and is expected to pay a
monthly interest for any outstanding sums on the
account
Credit Unions
 Here members within a certain club agree to make
regular servings and lend it to members in need
 Credit is only extended to members when needed at an
agreed interest rate which will usually be less than the
prevailing market interest rate
 It is generally regulated by the Credit Union Act 1979
THE CONSUMER CREDIT ACT
1974 as amended in 2006
 The legislation covers specific types of consumer credit
agreements known as Regulated Agreements (consumer
credit agreements and consumer hire agreements)
 Some credit agreements are not fully regulated known as
Partially Regulated (small agreements and Noncommercial agreements)
 Some credit agreements are not regulated, known as
Exempt agreements for instance credit union
agreements and normal trade credit of not more than
four instalments
Licensing of Credit and Hire
Business
 The Office of Fair Trading is responsible for issuing
licenses to hire and credit awarding businesses
 According to section 21 this includes banks, money
lenders, debt collectors and consumer hire businesses
 It is a criminal and civil offence to be involved in
regulated credit business without a license
 Special licenses are needed to canvass off premises in
such businesses
Stages in a Credit or Hire
Agreement
 Formalities are to be observed in the various stages of
the agreement
 Before the agreement (s55) there should be a ‘precontract information’
 During the agreement (s61-63) at least two copies of
the legible contract specifying all the relevant terms
(Annual Percentage Rate, Total Charge Per Credit)
 After the agreement (s67-74) Right to cancel
especially if contract was off premises (Cooling off
period of five days)
Post Contract Information
 For running account credit, the creditor is expected
to send periodic statements (monthly)
 For fixed sum credit the credit business is expected to
send an annual statement
 Failure to observe this may render the agreement
unenforceable
 Any variation of the terms, default or enforcement
notice must be communicated to the debtor
Credit Referencing Agencies
 Prior to giving credit to consumers, it is customary for
credit awarding businesses to make references from
agencies to establish the credit worthiness of a customer
 The most prominent agencies are Experian, Equifax and
Callcredit
 Consumers have the right to obtain information held about
them after paying a token fee from these agencies, s157-159
 These agencies normally need licenses to operate and are
also regulated by the Data Protection Act 1998 in relation
to holding accurate information of clients
Liability of Suppliers and
Creditors
 Where supplier supplies goods on behalf of a credit provider, (DCS
agreement) they are said to be agents of the credit company under
section 56 if the goods are defective. The consumer could sue the
creditor even for misrepresentations of the supplier.
 Section 75 makes both the supplier and the creditor to be equally
liable to the consumer for regulated agreements above £100 up to
£30,000. This specifically relates to credit card providers who are just
as liable as the provider of the goods. Their liability shall extend to
other consequential loss suffered by the consumer.
Termination and Default
 Credit agreements may be terminated prior to the agreed time by both
creditor and debtor in a number of situations
 Early settlement by debtor, s94-97
 Termination where the debtor returns goods due to inability to carry on
with the agreement, s98-101. The debtor is required to pay the
outstanding minimum amount in the contract and return the goods
in good condition
 Termination where the creditor seeks to retrieve goods due to breach
or default by the debtor
Default by Debtor
 If the debtor has breach the agreement, the creditor has to issue a
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default notice prior to taking the following action;
Terminate the agreement and demand early repayment
Recover possession of any goods (but not Protected Goods) or land
Regard rights conferred on the debtor as terminated
Enforce any security
Time allowed must be seven days prior to further action
The County court has powers to make enforcement orders under s
127, after checking to see that there were no fatal or non fatal
irregularities by the creditor
The court may also make a time orders under s 129 giving the debtor
more time to pay for the goods
Extortionate Terms
 Under section 140A and 140B, Courts are given powers to
re-open grossly unfair contracts
 This applies to consumer credits of any amount
 The statutory provision gives guidance as to what the
courts need to consider in determining whether it was
extortionate or not such as age of the party, level of risk
taken by the lender, financial pressure on debtor etc.
 In the 2006 legislation, regards is also placed on terms
where the lender can unilaterally change terms in the
contract
Questions
 What are the features of a regulated agreement under the Consumer
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Credit Act?
Distinguish between hire purchase, conditional sale and credit sale.
Indicate whether the following agreements are DC or DCS a) Credit
card agreement, b) Bank Loan, c) hire purchase
Advice Ben of her rights in the following circumstances, ( 1) she has
entered a hire purchase agreement to buy double glazing windows
from Charles Windows Ltd. The contract was actually signed at home
with a salesman from Charles Windows Ltd. (2) She is unable to keep
up repayments under a hire purchase contract with Auto Cars Ltd and
is considering giving back the car.
What is extortionate credit bargain?
Distinguish between running account credit and Fixed term credit
Assignment type Questions
 Where goods are supplied under a hire purchase
contract and are not fit for purpose, the hirer has
important rights against the hire purchase company.
Discuss with use of practical examples.
 Tim buys a Microwave using his credit card from DC
Household Shops for £500. When he tried to use it for
the first time the equipment exploded resulting in fire
which destroys his newly furnished Kitchen. The cost
of repairing the damage to the kitchen stands at £2500
and he seeks your advice as to who may be liable to
compensate him.
Nature of Agency
Meaning of Agency
 A relationship which exist between the principal
and an agent in which the function of the latter is to
enter into a contract with the third party on behalf
of the principal.
Features of Agency
 The principal and the third party must have
capacity to contract but not the agent
 The relationship between the principal and agent
may not be one of contract, however the agent
must be contracting with a third party
 The reason for agency is usually to save time,
resources for the principal and benefit from expert
knowledge of the agents
Types of Agents
 Estate Agents usually deal in real property on behalf
of the owners
 Factors deal in tangible property
 Brokers deal in intangible property
 Auctioneers auction property real as well as tangible
 Commercial agents are independent contractors who
have powers to sell and buy goods for the principal
 Directors are agents of companies and Partners are
agents of each other
 Banks are agents of clients
Creation of Agency
 By consent/agreement where principal gives actual
authority either express (verbal, written or by Deed) or
implied (Incidental or customary)
 By operation of law either due to necessity or by statute
(Partnership Act 1890, Companies Act 2006, DUGA 1952)
 By estoppel where the agent uses their apparent
authority and the principal is prevented from refusing
responsibility
 By ratification where principal adopts agents action who
contracted without authority
Duties of an agent
Duties where no contract is necessary between agent
and principal
 Fiduciary duties relating to honesty and fidelity, this
usually includes , no secret profit, no conflict of
interest and good faith action on behalf of
principal
 Duty of skill and care relating to competence
Duties requiring a contract to exist
 Performance and obedience
Rights of Agent
Right requiring a contract to exist
 Remuneration
 Lien over property at their disposal
Right requiring no contract
 Reasonable expenses
Authority of Agents
 Actual authority given by the principal which could
be express or implied
 Apparent authority is that which the third party
assumes that the agent has got
Agency relationships
 Disclosed principal
 Undisclosed principal
Disclosed principal
The agent indicates that they are contracting on
behalf of someone else
The agent is usually not liable except
 They sign a deed without power of attorney
 The principal refuses to ratify unauthorised
contracts and the agent is sued for breach of
warranty of authority
 Principal did not exist or lacked capacity at the
time to contract
Undisclosed Principal
Agent can sue and be sued in such contracts
 However agent who contract within their given
authority can indicate who principal is and the
third party may sue them
 Principal may not ratify unauthorised contracts
The third party may reject the principal
 If identity of the other party was crucial in the
contract
 Where the existence of agency was denied express
or implied by agent
Termination of Agency
Acts of the parties
 Revocation by principal or renunciation by
agent
 Performance or breach of important term
 Agreement of the parties or cessation of
business
By law
 Insanity
 Bankruptcy
 Death
Questions
 What is agency?
 Which of the two parties must have capacity to contract?
 Distinguish between Estate Agents, Factors and Brokers.
 What is agency by agreement?
 What are the elements to be established to prove agency of necessity
 State a duty of an agent which only exist if there is a contract with the
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principal
What are fiduciary duties
What is agency by Estoppel
What are the conditions for agency of ratification to exist
Distinguish between actual and apparent (ostensible) authority
Distinguish between disclosed and undisclosed principal
Assignment type question
 Max runs a Footwear business and employs Nick as his stores Manager.
Before going on leave, Max gives specific authority to Nick to look after
the business and make withdrawals or take out loans of not more that
£3000 in case of some cash flow problems. Max also informs the bank
that while he is away, Nick shall be the main person running the
business for the next two months and shall exercise full managerial
powers. However Max forgot to tell the bank that the limit of funds
which Nick should be allowed to withdraw or loan was £3000. While
Max was on holidays, Nick went to the bank and requested an instant
business loan of £15,000 to enable him buy some new stocks which the
bank gave. Nick has since disappeared and now Max has now returned
and is seeking your advise as to whether he is required by law to pay the
money to the bank considering that Nick did not have the authority to
take that amount of money in the first place. Advice Max .