The Consumer Credit Act 1974 was a groundbreaking Act of the Parliament of the United Kingdom that fundamentally brought reform to laws relating to consumer credit and the practices of lending institutions in the United Kingdom.

Prior to the passing of the Consumer Credit Act 1974, legislation regulating consumer credit was faulty; before the act was passed lenders were not regulated and could manipulate borrowers who were in desperate need of seeking an avenue of financing.

The regulations surrounding the lending process, prior to the Consumer Credit Act 1974, was disorganized and only focused on particular areas rather than the consumer credit market as a whole. For instance, only moneylenders and hire-purchase agreements were forced to operate under regulations prior to the passing of the Consumer Credit Act 1974.

The Consumer Credit Act 1974 was viewed as a necessary form of legislation because the credit market, due to de-regulation, was manipulative and highly unorganized. Lending institutions were free to operate without licenses and able to impose any fees or interest rates to their repayment schedules. 

The Consumer Credit Act 1974 introduced regulations that offered protections for consumers interested in financing or borrowing; the new regulations of the Consumer Credit Act 1974 were attached to all lenders within the field of consumer credit and its related industries. Such lending intermediaries, as a result of the Consumer Credit Act 1974, were required to obtain licensing from the Office of Fair Trading.

These licenses, which may be suspended or revoked in the event of manipulative practices or irregularities, informed borrowers that they were applying for loans or funding from accredited and legitimate financial institutions.  

In addition, the Consumer Credit Act 1974 regulated what may be taken as a security for the ability to obtain loans or financing. The regulations surrounding securities, ultimately limited the ways in which credit organizations can advertise their lending efforts.

In general, this specific regulation gave the county courts the ability to intercede when unfair or unjust credit agreements were established between the respective lender and the borrower. Furthermore, this critical regulation of the Consumer Credit Act 1974 gave additional rights to the borrower, including certain limited rights to rule such agreements void.

The fundamental provision found in the Consumer Credit Act 1974 enforced all lending institutions to obtain a license before they can offer a form of financing or consumer credit to the general population. The two types of licensing instituted in the act are the group licenses and standard licenses.

Group licenses are issued by the Director General of Fair Trade and are obtained by those lending institutions that do not pre-qualify or screen potential borrowers. Group licenses are also obtained by lending institutions, where the standard license must be obtained by the individual lender.

A consumer credit license is an official certification that enables financial intermediaries or other lending institutions in the United Kingdom to provide financing to the general public. Companies in the United Kingdom that offer loans to prospective borrowers must, by law, possess a consumer credit license in order to legally own and operate their business in a legitimate manner. 

The consumer credit license and the process aligned with certification was a fundamental aspect of the Consumer Credit Act. This piece of legislation, which was passed in 1974 in the United Kingdom, was developed to act as a safeguard for consumers in regards to dealing with loan providers.

Prior to the act, unsolicited and un-licensed agencies or financial institutions could offer loans or financing to any consumer without obtaining any formal license. This format, although beneficial in theory, proved to be debilitating to a number of consumers who eventually fell victim to predatory lending rates and pervasive lending companies.

Based on federal law in the United Kingdom, the obtainment and adherence to procedural guidelines in relation to the consumer credit license, is a crucial and fundamental step for the legalization of lending techniques. As stated before, any company, bank, corporation or lending institution of any kind, who offers loans to consumers or other businesses, without a consumer credit license, will be deemed as a fraudulent and illegal business model.

Managers or owners of lending companies may apply for a consumer credit license at the website of the office of Fair Trading. This government agency is the primary distributor of consumer credit licenses and is responsible for administering the necessary procedural guidelines for the obtainment of the consumer credit license. At the Office of Fair Trading’s website an individual can apply for a new consumer credit license, renew their licenses, or make changes to an existing license.

The beginning of the application will request the owner or manage to state the type of business applying for the consumer credit license. For example, if you own a trade union or building society, you will need to select the appropriate business entity on your application. Following the satisfaction of this information, you must write down your reference number—12 digit letter/number combination unique to your business.

The application will continue to ask basic questions concerning your business and the lending activities attached to your business. The consumer credit license application, once started, must be completed and subsequently submitted for review in 45 days or less.

In addition to this time constraint, the consumer credit license application will require the fulfillment of a number of required fees. The fees associated with the consumer credit application will range from 150 to 970 pounds and must be paid via a credit card or debit card. 

Consumer credit is the amount of financing used by consumers to purchase non-investment services or products; typically, these purchases depreciate quickly—non-investment services or products include most material goods and are distinct from investment products like stocks, bonds or pieces of property.

The term, ‘consumer credit’ can vary in regards to definition, but the Federal Reserve in the United States is the predominant authority for issuing such definitions. As a result, the Federal Reserve defines consumer credit as any form of financing given to the individual consumer; the products purchased using this credit must be obtained for personal consumption and must not include any investment graded securities or assets.

Consumer credit can be defined as a stream of financing used to purchase particular goods in lieu of a direct payment; common forms of consumer credit include, financing for automobile purchases, personal loans (installment loans), credit cards, and retail loans. This; however, is a broad definition of consumer credit and more accurately corresponds to the act of lending to individual consumers. 

Mortgages are predominantly excluded from being labeled as ‘consumer credit’ because the underlying product purchased is a primary asset—home values or properties are purchased as an investment due to the general rise in prices of homes and property. 

In most instances, consumer credit is offered by financial institutions, such as financial intermediaries, banks or other lending institutions. 

The cost of consumer credit is the additional amount, meaning over the amount borrowed, that the individual consumer must repay. The cost of consumer credit also requires or includes interest payments, arrangement fees and a slew of other charges. As a result of these additional fees, the act of borrowing money or opening a credit line requires the individual—depending on credit score—to pay beyond the amount borrowed. 

Some of the costs attached to opening a line of consumer credit are mandatory, meaning they are required by the lender as the integral part of the initial credit agreement. Other costs; however, are attached to credit insurance, which may be optional. The borrower, the individual consumer who opens up the credit line, will decide whether or not to pursuit optional costs such as credit insurance.

The costs of consumer credit must be understood before opening a credit line; often times individuals who are out-leveraged, who borrow more than they earn, are eventually crippled by mounting debts as a result of late payments or high interest rates.

Interest rates and other charges are presented in a variety of ways within a consumer credit agreement. The majority of legislative regimes force lenders to quote all mandatory charges in the form of an annual percentage rate. The APR is a calculation that promotes “truth in lending”; the delivery of the APR gives potential borrowers a clear measure of the true cost of opening up consumer credit lines. Furthermore, the delivery of such a percentage enables consumers to compare credit lines and evaluate which forms of financing are most desirable.

The APR is derived from the pattern of advances and repayments made during a consumer credit agreement; optional charges, such as insurance, are not included in the APR calculation.