Consumer Credit Regulations: Early Settlement and Rebate Calculation, Lecture notes of Consumer Law

Download Consumer Credit Regulations: Early Settlement and Rebate Calculation and more Lecture notes Consumer Law in PDF only on Docsity! Status: This is the original version (as it was originally made). This item of legislation is currently only available in its original format. STATUTORY INSTRUMENTS 2004 No. 1483 CONSUMER CREDIT The Consumer Credit (Early Settlement) Regulations 2004 Made - - - - 5th June 2004 Laid before Parliament 9th June 2004 Coming into force - - 31st May 2005 The Secretary of State, in exercise of the powers conferred upon her by sections 95, 97(1), 182(2) and 189(1) of the Consumer Credit Act 1974(1), hereby makes the following Regulations: Citation, commencement and interpretation 1.—(1) These Regulations may be cited as the Consumer Credit (Early Settlement) Regulations 2004, and shall come into force on 31st May 2005. (2) In these Regulations— “the Act” means the Consumer Credit Act 1974; “the APR” means the annual percentage rate of charge for credit determined in accordance with the Total Charge for Credit Regulations, subject to regulation 3(2) below; “early settlement” shall be construed in accordance with regulation 2(1) below; “rebate” means a rebate of charges for credit included in the total charge for credit; “the relevant date” shall be determined in accordance with the Total Charge for Credit Regulations; “the settlement date”, means the settlement date provided for in regulation 5 and, where applicable, regulation 6; “the total charge for credit” shall be determined in accordance with the Total Charge for Credit Regulations, subject to regulations 3(2) and 7 below; and “the Total Charge for Credit Regulations” means the Consumer Credit (Total Charge for Credit) Regulations 1980(2). (3) The length of any period for the purposes of calculations under these Regulations shall be determined in accordance with regulation 11 of the Total Charge for Credit Regulations, other than paragraph (5)(a) of that regulation. (1) 1974 c. 39; section 189(1) is cited for the definitions of “prescribed” and “regulations”. (2) S.I. 1980/51, amended by S.I. 1985/1192, 1989/596, 1999/3177. Document Generated: 2019-07-24 Status: This is the original version (as it was originally made). This item of legislation is currently only available in its original format. (4) In these Regulations, references to repayment of credit are references to repayment of credit with any amount included in the total charge for credit payable at the same time. Entitlement to rebate 2.—(1) Subject to the following provisions of this regulation, the creditor shall allow to the debtor under a regulated consumer credit agreement a rebate at least equal to that calculated in accordance with the following provisions of these Regulations whenever early settlement takes place, that is to say whenever, under section 94 of the Act, on refinancing, on breach of the agreement or for any other reason, the indebtedness of the debtor is discharged or becomes payable before the time fixed by the agreement, or any sum becomes payable by him before the time so fixed. (2) Paragraph (1) does not apply in the case of agreements of the following descriptions— (a) agreements under which no payments of items included in the total charge for credit are required to be made in respect of the period of time commencing on the settlement date; (b) agreements for running-account credit; (c) land mortgages under which no instalment repayments secured by the mortgage on the debtor’s home, and no payment of interest on the credit (other than interest charged when all or part of the credit is repaid voluntarily by the debtor), are due or capable of becoming due while the debtor continues to occupy the mortgaged land as his main residence. (3) Paragraph (1) does not apply where a hire-purchase or conditional sale agreement is terminated by the debtor under section 99 of the Act. (4) Where a sum less than the total remaining indebtedness of the debtor is required to be paid before the time fixed by the agreement, no consequential payment of any subsequent instalment required to be paid under the agreement, or under a modifying agreement not relating to the provision of additional credit or an increase in the total charge for credit, shall entitle the debtor to a rebate. Items included in the calculation of rebate 3.—(1) Subject to paragraph (2), the rebate shall be calculated by reference to all sums paid or payable by the debtor or a relative of his under or in connection with the agreement (whether to the creditor or any other person) and included in the total charge for credit. (2) There may be excluded from the calculation of the rebate— (a) taxes, duties, fees and charges payable under or by virtue of any statute or payable to the Secretary of State or any other Minister or government department (including for this purpose a Northern Ireland department or a government department in any country outside the United Kingdom) or to a local authority or similar body outside the United Kingdom; (b) sums paid or payable under linked transactions, except sums paid before the settlement date in respect of cash, goods or services to be supplied under the transaction wholly or partly after that date; (c) sums payable under linked transactions excluded under regulations made under section 96(3) of the Act from the operation of section 96(1); (d) any fee or commission paid by the debtor or a relative of his under a credit brokerage contract relating to the agreement, other than a fee or commission financed by the agreement. Calculation of the amount of rebate 4.—(1) The amount of the rebate is the difference between the total amount of the repayments of credit that would fall due for payment after the settlement date if early settlement did not take place and the amount given by the following formula— 2 Document Generated: 2019-07-24 Status: This is the original version (as it was originally made). This item of legislation is currently only available in its original format. 5th June 2004 Gerry Sutcliffe, Parliamentary Under Secretary of State for Employment Relations, Competition and Consumer Affairs, Department of Trade and Industry 5 Document Generated: 2019-07-24 Status: This is the original version (as it was originally made). This item of legislation is currently only available in its original format. SCHEDULE Regulation 4(3) EXAMPLES ILLUSTRATING USE OF FORMULA FOR CALCULATING REBATE Example 1—medium term, medium value loan A loan of £5,000 is repayable by 48 monthly instalments of £134.57, starting one month after the relevant date. The monthly repayments include interest and all other charges included in the total charge for credit. Thus the total amount repayable = £134.57 x 48 = £6,459.36. The total charge for credit = £6,459.36 −£5,000 = £1,459.36. The creditor receives notice from the debtor requesting early settlement immediately after payment of the 12th instalment (i.e. after one year). Assuming that no charges are excluded from the calculation of the rebate under regulation 3(2), the APR on the loan required for the calculation of the rebate is 14% per annum. The creditor opts to calculate the rebate using periods of one month, giving a period rate equivalent of the APR = (1.14(1/12)−1) x 100 = 1.0979% per month. Hence, for the purposes of the formula in regulation 4(1)— A1 = 5,000 B1 = 134.57 = B2 = ... ... = B48 r = 1.0979/100 = 0.010979 m = 1 n = 12 a1 = 12 (working in periods of 1 month) b1 = 11 b2 = 10 b3 = 9 : b11 = 1 b12 = 0 Then the loan outstanding immediately after payment of the12th instalment as calculated by the formula in regulation 4(1) is— 5,000 x (1.010979)12 − (134.57 x 1.01097911 + 134.57 x 1.01097910 + ... ... ... ... ... ... ... ... + 134.57 x 1.0109791 + 134.57 x 1.0109790) = 5,700.01 − (151.74 + 150.10 + 148.47 + 146.85 + 145.26 + 143.68 + 142.12 + 140.58 + 139.05 + 137.54 + 136.05 + 134.57) = 5,700.01 − 1,716.01 = £3,984.00. If regulation 5(a) applies (making the settlement date 28 days after the debtor’s notice is received) no further payments will be due; thus the amount outstanding at the settlement date is— £3,984.00 x 1.010979(28/30) = £4,024.81. (this assumes that there are 30 days between the date for the 12th instalment and the 13th instalment; for months of 31 days, the amount outstanding would be £3,984.00 x 1.010979(28/31) = £4,023.49.) 6 Document Generated: 2019-07-24 Status: This is the original version (as it was originally made). This item of legislation is currently only available in its original format. If the creditor elects to defer the settlement date by a further month under regulation 6, this makes the date for calculating the rebate the 28th day after the payment date for the 13th instalment. For the calculation using the formula in regulation 4(1)— n = 13 a1 = 13 (working in periods of 1 month) b1 = 12 b2 = 11 b3 = 10 b12 = 1 b13 = 0 Then the loan outstanding to be repaid immediately after payment of the 13th instalment as calculated by the formula in regulation 4(1) is— 5,000 x (1.010979)13 − (134.57 x 1.01097912 + 134.57 x 1.01097911 + ... ... ... ... ... ... ... ... + 134.57 x 1.0109791 + 134.57 x 1.0109790) = 5,762.59 − (153.41 + 151.74 + 150.10 + 148.47 + 146.85 + 145.26 + 143.68 + 142.12 + 140.58 = 139.05 + 137.54 + 136.05 + 134.57) = 5,762.59 − 1,869.42 = £3,893.17. The formula gives an amount outstanding after payment of the 13th instalment of £3,893.17. The amount outstanding at the settlement date is £3,893.17 x 1.010979(28/30) = £3,933.05 (assuming that the period between the 13th and 14th instalment dates is 30 days). The debtor will also have to pay the instalment due between the date of request for early settlement and the settlement date assumed for calculating the rebate (i.e. the 13th repayment of £134.57). Hence the total amount to be paid at the settlement date (which is 58 days after the date of request for early settlement) is £4,067.62. For this example, the rebate would be £776.90; this is calculated by deducting the early settlement figure of £3,933.05 from the total payments outstanding after the date assumed for calculating the rebate, which is £4,709.95 (=35 x £134.57). N.B. If the period between the 13th and 14th instalments were 31 days, the amount outstanding would be £3,893.17 x 1.010979(28/31) = £3,931.76 and the total amount still to be repaid would be £4,066.33. Other adjustments may be appropriate where the lender opted to choose the period of deferment as 30 days. In this case the settlement date for calculating the rebate would be 58 days after the date on which notice was received). Example 2—longer term, high value loan A loan of £10,000 is repayable by 180 monthly instalments of £139.51 starting one month after the relevant date. The monthly repayments include interest and all other charges included in the total charge for credit. Thus total amount repayable = £139.51 x 180 = £25,111.80. The total charge for credit = £25,111.80 − £10,000 = £15,111.80. The creditor receives notice from the borrower requesting early settlement immediately after payment of the 72nd instalment (i.e. after six years). Assuming that no charges are excluded from the calculation of the rebate under regulation 3(2), the APR on the loan required for the calculation of the rebate is 16% per annum. The creditor opts to calculate the rebate using periods of one month, giving a period rate equivalent of the APR = (1.16(1/12) − 1) x 100 = 1.2445% per month. The creditor also opts to defer the settlement 7