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The Lending Code
Setting standards for banks, building societies and credit card
providers
November 2009
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To discuss this code you can contact:
British Bankers’ Association
Pinners Hall
105-108 Old Broad Street
London
EC2N 1EX
Email: info@bba.org.uk
Tel: 020 7216 8800
Building Societies Association
6th Floor, York House
23 Kingsway
London
WC2B 6UJ
Email: information@bsa.org.uk
Tel: 020 7520 5900
UK Cards Association
5th Floor, Mercury House, Triton Court
14 Finsbury Square
London
EC2A 1LQ
Email / contact through the website:
UK Cards Association - Homepage
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Contents
Introduction 4
Section 1 Key commitments 5
Section 2 Communications and financial promotions 6
Section 3 Credit reference agencies 8
Section 4 Credit assessment 9
Section 5 Current accounts overdrafts 10
Section 6 Credit cards 12
Section 7 Loans 17
Section 8 Terms and conditions 19
Section 9 Financial difficulties 20
Section 10 Complaints 25
Section 11 Monitoring 25
Annex A Summary box for unsecured loans 26
Annex B Statement of Principles for micro-enterprises 30
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Introduction
1. This is a self-regulatory Lending Code setting minimum standards of good practice when dealing with the following
customers in the UK:
• Consumers;
• Micro-enterprises1; or
• Charities with an annual income of less than £1 million.
2. The Lending Code covers good practice in relation to:
• loans;
• credit cards;
• charge cards2; and
• current account overdrafts.
It does not apply to merchant services, non-business borrowing secured on land, or to sales finance.
3. The Code applies to lending in sterling. However, subscribers are not precluded from applying the Code’s standards to
lending in other currencies.
4. Compliance with the terms of this Code is independently monitored and enforced by the Lending Standards Board
(LSB). A list of subscribers to the Code and contact details for the LSB can be found at
Lending Standards Board.
5. This Code has not been reviewed by the FSA and the FSA will not have regard to this Code when exercising its
regulatory functions.
6. This Code sets standards of good lending practice but subscribers must - at all times - ensure they are compliant with
the Consumer Credit Acts and associated Regulations as well as other relevant legislation (such as the Payment
Services Regulations (PSRs) and, for consumers, the Consumer Protection from Unfair Trading Regulations).
7. It is important that, when considering how the Code will affect products and services, all delivery channels are catered
for. The Code applies regardless of how a product or service is delivered.
8. It is the responsibility of subscribers to ensure that any third party or agent acting on their behalf complies with the Code
in relation to any products or services covered by this Code.
9. Subscribers should make information available to customers to inform them that the subscriber follows the Lending
Code. This should include providing a link to the Code on the subscriber’s website and, where appropriate, making
reference to the Code within relevant literature (for example, within an account-opening pack). The subscriber’s website
and relevant literature should be amended to include reference to this Code within a six month transitional period that
ends on 30 April 2010.
10. Unless otherwise specified all references in this Code to ‘customer’ or ‘customers’ apply to personal and microenterprise
customers.
11. This Code uses the terms ‘provide’, ‘give’, ‘tell’ and ‘make available’ interchangeably. These terms are not defined to
specify how information is made accessible to the customer. Instead, firms should determine the most appropriate way
for customers to access information at the right time in order to make informed decisions.
12. However, where this Code requires that certain information is given to customers ‘personally’, this means that some
form of notification is given or sent to them, rather than being told by a general notice or advertisement. Such
notification could be made by letter, by e-mail or by an alternative method that reflects the manner in which the product
or service is normally operated.
1 A micro-enterprise is defined as a business that employs fewer than 10 persons and has a turnover or annual balance sheet that does not exceed €2
million. For more information see http://ec.europa.eu/enterprise/enter...user_guide.pdf
2 Charge cards are subject to the Key Commitments and general provisions of this Code, where a requirement is not specific to another product.
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Section 1: Key commitments
13. Subscribers will act fairly and reasonably in all their dealings with customers by, as a minimum, meeting all the
commitments and standards in this Code. The key commitments are shown below.
• Subscribers will make sure that advertising and promotional literature is fair, clear and not misleading and
that customers are given clear information about products and services.
• Customers will be given clear information about accounts and services, how they work, their terms and
conditions and the interest rates that apply to them.
• Regular statements will be made available to customers (if appropriate). Customers will also be informed
about changes to the interest rates, charges or terms and conditions.
• Subscribers will lend money responsibly.
• Subscribers will deal quickly and sympathetically with things that go wrong and act sympathetically and
positively when considering a customer’s financial difficulties.
• Personal information will be treated as private and confidential, and subscribers will provide secure and
reliable banking and payment systems.
• Subscribers will make sure their staff are trained to put this Code into practice.
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Section 2: Communications and financial
promotions
14. This section applies to financial promotions for lending products and services and communications to customers
during the lifetime of the product or service.
15. The key consideration for subscribers is to ensure communications are clear, fair and not misleading and that
customers are provided with appropriate information at the right time in order to make informed decisions.
16. Subscribers should ensure that financial promotions are compliant with relevant advertising legislation and industry
codes of practice, such as the Consumer Credit (Advertisements) Regulations 2004 and the Committee of Advertising
Practice Codes.
17. For promotions to personal customers that are made at a distance subscribers should follow the requirements of the
Financial Services (Distance Marketing) Regulations 2004.
18. For direct sales of credit cards, subscribers should follow the relevant UK Cards Association best practice guidelines,
which can be found at UK Cards Association - Best practice guidelines
19. For some unsecured personal loans, key product information within financial promotions and pre-sale information
should be available in a standard summary box. Details of which promotions and communications are covered and
the format of the summary box are included in Annex A (p.26).
20. To ensure financial promotions and communications are clear, fair and not misleading subscribers should have regard
to:
• presenting information in plain language and wherever possible avoiding the use of technical or legal
language
• the way the communication or financial promotion is being made e.g. direct mail, letter, email, text
message, branch or web material
• the type and complexity of information that is being presented, the actions the information might elicit from
the customer, the channels by which the information is accessible and the passage of time, if any, since
the information was last provided
• the appropriate format and content of the communication based on its intended audience. For instance, a
communication to a personal customer might include different information to that for a micro-enterprise,
where needs may differ.
21. Micro-enterprise customers should be given a copy of the BBA Statement of Principles3 when they become a
customer and at any time they request a copy. The Statement is attached as Annex B for your information and can be
ordered from the BBA website at BBA Association
Marketing and advertising
22. Subscribers must have the customer’s specific permission to pass the customer’s name and address to any company,
including other companies in the subscriber’s group, for marketing purposes.
23. There are various acceptable methods of obtaining the customer’s consent. It may, for example, be given by way of a
clear and unambiguous clause above a signature box on an application form, or a positive ‘click’ on an internet
application, or a positive reply to a specific question on the telephone. Subscribers should also be aware of the
Information Commissioner’s Guidance for Direct Marketers and telecoms licensing requirements. Consent should not
be required in return for the provision of standard account services.
24. Subscribers can tell customers about another company’s services or products but no confidential information about
the customer should be passed to the other company by the subscriber without customer consent.
25. If the customer is interested in the other company’s products or services and they respond, then they are themselves
releasing confidential information. For example, a subscriber may have a subsidiary which offers general insurance
products. The subscriber could send their customer details of those products. The subscriber should make clear to
the customer that the third party is a separate legal entity, and is not a division of the subscriber’s company, since this
will not always be clear to the customer from the name of the third party. It is only if the customer chooses to respond
3 Subscribers have a six month transitional period to replace the Statement of Principles which references the Banking Code, with the updated version
at Annex B, which references the Lending Code.
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positively that the subsidiary will learn any details about the customer, or even that the customer has been sent the
information in the first place.
26. Customers must be given the opportunity to opt out of receiving the subscriber’s marketing information. They should
be reminded of this option at least once every three years.
27. Account opening forms (whether paper, internet-based, questions over the telephone, or other ‘welcome pack’
information) should contain a section or question to allow customers to signify that they do not wish to receive
‘marketing approaches.’ Examples of marketing approaches include literature through the post, e-mails and telephone
calls. The types of approaches could be listed so the customer can object to some rather than all.
28. ‘Marketing approaches’ means information designed to sell additional products and services. This means that if there
is a clear intention to sell a product or service which the customer does not already have it will be caught by this
provision, however it is sent. However, the provision of information relating to product or service improvements or the
availability of new channels (e.g. that the customer’s existing account(s) can be accessed via the internet) are
excluded from this provision, as are changes to administrative details, such as new branch or telephone helpline
opening hours.
29. As an illustration, advising a customer that they have free annual travel insurance with their credit card is not a
marketing approach, whereas promoting an enhanced credit card to a standard credit cardholder is.
30. Subscribers should consider carefully whether the purpose of a customer communication is operational or
promotional. Where ‘combined’ messages are used, a non-promotional version may be needed for customers who
have opted out of receiving marketing material.
31. Express consent is not required to send this information, but customers must be given a clear opportunity to opt out of
receiving it. Subscribers should, however, be aware (in the case of direct marketing telephone calls) of the
Information Commissioner’s Guidance in relation to the Privacy and Electronic Communications (EU Directive)
Regulations 2003.
32. It will not be sufficient to state only in terms and conditions that customers can opt out by writing to a particular
address; however, provided it is clear and unambiguous, a notification can be included in, for example, an account
opening pack. In addition, existing customers have to be reminded, at least once every three years, that they can opt
out of receiving this information. This reminder could be by letter, e-mail, telephone or other method, such as being
included in an annual mailing, provided it is sent personally to each customer and is clear. Whatever notification
method is chosen, subscribers should ensure they are familiar with the various pieces of guidance issued by the
Information Commissioner under the Data Protection Act 1998.
33. The three year notice can also be covered by subscribers adopting a more frequent approach, for example on all
statements and/or marketing material.
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Section 3: Credit reference agencies
34. When customers apply for a lending product, subscribers should tell them when they may pass the customer’s details
to credit reference agencies (CRAs) and the checks that subscribers may make with them. For example, customers
should be told if a record of the search is kept at the CRA and, if so, that this could impact the customer’s ability to
obtain credit elsewhere within a short period of time.
35. Subscribers can give CRAs default information about a customer’s debts if:
• the customer has fallen behind with their payments
• the amount owed is not being disputed by the customer; and
• the customer has not made a proposal that satisfies the subscriber for repaying the debt following the
subscriber’s formal demand.
36. Whether or not notice was given by the subscriber and consent was obtained from the customer at the time the
account was opened, disclosure of default information can be made. But, in all cases, the customer must be given
further notice of the intention to disclose the information at least 28 days before the disclosure is made (for example,
when a default notice or formal demand is given). At the same time, customers must be given an explanation about
how default information registered against them may affect their ability to obtain credit in the future. This notice will
mean that customers have 28 days to try to repay or come to some arrangement with the subscriber before default
information is passed to the CRA.
37. For the purposes of the second bullet in paragraph 35, a customer dispute is relevant if it refers to the amount of
money owed by the customer and is genuine, reasonable and unresolved. Further detail is provided in paragraph 43
of the ICO guidance referenced below.
38. Subscribers should refer to the Information Commissioner’s Data Protection Technical Guidance on Filing Defaults
with CRAs (Information Commissioner's Office - ICO).
39. With the customer’s permission, subscribers can share information about the day-to-day running of the customer’s
account, including positive data, with CRAs where the firm has agreed to follow the industry’s Principles of
Reciprocity. It is consistent with the legal position that any other disclosure to CRAs can be made only with the
customer’s consent, usually by way of a declaration on an application form. The Information Commissioner accepts
that such permission may be made a condition of borrowing.
40. The requirement to share data does not apply in specialist customer segments such as private banking where sharing
CRA data is not always appropriate.
41. See also the Information Commissioner’s Guidance on the Data Protection Act 1998 which requires, in the absence of
consent, one of eleven other conditions to be met. The ‘permission’ can be covered in a number of ways, for example,
in terms and conditions, in an account opening pack, or it can be obtained at the time the disclosure is made. (Useful
information can be found at Information Commissioner's Office - ICO)
42. If a customer asks, subscribers should tell them how to get a copy of the information that CRAs hold about them, or
should give the customer one of their leaflets that explain how credit referencing works.
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Section 4: Credit assessment
43. Before lending any money; granting or increasing an overdraft, or other borrowing, subscribers should assess whether
the customer will be able to repay it.
Personal customers
44. For personal customers, this assessment should include consideration of information from CRAs plus at least one of
the following three points:
• The customer’s income and financial commitments.
• How they have handled their finances in the past.
• Internal credit scoring techniques.
Additional useful considerations could include:
• any security provided; and
• why the customer wants to borrow the money and for how long.
45. Assessment may also include other checks that have not been listed above.
46. This requirement does not apply in specialist customer segments such as private banking where use of CRA data is
not always appropriate.
47. Where income is one of the factors considered when assessing ability to repay a personal loan and the loan is agreed
only if the income of another person is taken into account, normally the loan should be provided on a joint and several
basis. However there may be circumstances when it is appropriate to provide a loan on a sole basis.
48. Subscribers should ensure they are familiar with the requirements of the Code Sponsors’ Guide to Credit Scoring and
the explanations that need to be given to customers if credit scoring is used, and also the Information Commissioner’s
Guidance on Credit Referencing.
Micro-enterprise customers
49. For micro-enterprise customers, this assessment may include looking at:
• why the business wants to borrow the money
• the business plan and accounts
• the business’s cash flow, profitability and existing financial commitments
• any personal financial commitments which may affect the business
• how the customer has handled their finances in the past
• information from credit reference agencies and, with the customer’s permission, others, such as other
lenders and the customer’s landlord (where relevant)
• credit-assessment techniques, such as credit scoring
• any security provided.
50. Subscribers should also ensure that they follow the BBA Statement of Principles which sets out how banks should
work together with micro-enterprises. The Statement is included as Annex B.
51. If the subscriber requires a micro-enterprise customer to hold a current account in order to get a loan the reasons for
this should be explained to the customer before the loan application is completed.
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Section 5: Current account overdrafts
Pre-sale information
52. When providing customers with information, before a contract is entered into, about a current account offering an
overdraft facility, subscribers should include clear, fair and not misleading information outlining the availability of the
overdraft, including whether there are qualifying criteria for accessing the overdraft.
53. The customer must be provided, where relevant, with details of the interest rate to be applied or, if reference interest
rates are to be used, the method for calculating the actual interest and the relevant date and index or base for
determining such reference interest rates.
54. This information must be provided either in good time, before the customer is bound by the contract; where the
contract concludes at the payment service user’s request, using a means of distance communication, immediately
after the conclusion of the contract.
Point of sale and post-sale information
55. If a customer is offered an overdraft, or an increase in their existing overdraft limit, subscribers should tell the
customer if the overdraft is repayable on demand. The explanation could be contained in a facility letter or the terms
and conditions.
56. If a customer’s overdraft application is declined, the subscriber should explain the main reason why if asked by the
customer. This could be provided in writing or electronically, if requested.
57. The written explanation could be given in the form of a leaflet if this is sufficiently focused. With regard to refusals
based on credit scoring, the Code Sponsors’ Guide to Credit Scoring refers and can be found at:
BBA Association - Guide to Credit Scoring . Subscribers should have regard to the potential for
financial crime in the information they provide and will want to avoid compromising their security procedures.
Interest rates
58. Subscribers should make information about overdraft interest rates available to customers via:
• a telephone helpline;
• a website;
• notices in branches; or
• information from staff.
59. If an overdraft is provided subscribers should give customers information on the interest rates which apply and when
interest will be collected. If customers ask, subscribers should also give a full explanation of how interest is worked
out.
60. Before taking interest, subscribers should give at least 14 days notice of how much will be taken.
61. Subscribers should inform customers about changes to the interest rates on their overdraft in compliance with the
relevant regulatory requirement applying to the subscriber’s overdraft terms.
62. Within 3 working days of a rate change, notices should be put in branches and newspapers. To help compare rates,
the old rate should also be included.
63. Where an overdraft interest rate tracks changes to an index rate, the requirement to inform customers of changes
does not apply.
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Charges
64. Subscribers should make available to customers information about any charges for overdrafts via:
• a telephone helpline;
• a website; or
• by asking staff.
65. Subscribers should tell customers personally at least 30 days before increasing an overdraft charge or introducing a
new overdraft charge.
66. Further guidance on charges information for current accounts, which are regulated under the Payment Services
Regulations, can be found at: http://www.fsa.gov.uk/pubs/other/PSD_approach.pdf
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Section 6: Credit cards
Pre-sale information
67. Information provided to customers should be clear, fair and not mis-leading. Subscribers should present information
about the main features of a credit card in a summary box, as set out in The UK Cards Association best practice
guidelines UK Cards Association - Best practice guidelines
68. The summary box should be provided to the customer prior to their acceptance of the credit agreement.
69. All integral features of the product, such as introductory rates, should be included in the summary box. Information on
free-standing or optional product features, such as Payment Protection Insurance, credit card cheques or other freestanding
product features should not be shown in the summary box. Information on such free-standing features
should be provided separately and should comply with any relevant best practice guidelines.
70. Pre-contract, the summary box should appear prominently on, or within, any application form/pack, acting as a final
reminder for the consumer. This will typically cover direct mail pieces, free-standing leaflets, inserts etc. but not media
such as television, radio, cinema or outdoor advertising.
71. For internet applications, a click-through to a page containing the summary box should be available.
72. Credit card issuers are not precluded from using the summary box in any advertising media they choose or at any
point post-contract.
73. Subscribers should only send a credit card to a customer if they request one or to replace a credit card the customer
already has.
Point of contract information
74. Before a customer enters into the contract for a credit card (and when they accept the product for the first time) they
should be given information relating to the following:
• An explanation of how interest is calculated and charged; for example, whether it is charged on the full
statement balance or only on any balance remaining after the customer has made the monthly payment;
• The PSRs require that the customer must be provided, where relevant, with details of the interest and
exchange rates to be applied or, if reference interest and exchange rates are to be used, the method for
calculating the actual interest and the relevant date and index or base for determining such reference
interest or exchange rates;
• This information must be provided either in good time before the customer is bound by the contract, or
where the contract is concluded at the payment service user’s request, using a means of distance
communication, immediately after the conclusion of the contract;
• Details of how monthly payments are applied to any outstanding balance across transaction types
including promotional offers;
• An explanation of recurring transactions;
• details of charges for the day-to-day running of the account, including any annual fee, dormancy fee,
charge for exceeding credit limit, charge for delayed monthly payment, charges for overseas transactions,
cash withdrawal fees for card usage at an ATM or over the counter, fees for any cash equivalent
transactions, balance transfer fees, returned payment fees due to insufficient funds, and any other
applicable fees;
• The distinction between being the principal cardholder and an additional cardholder should be explained
i.e., that the principal cardholder is responsible for all spending, including that by additional cardholders,
and is responsible for repayments on the credit card;
• The interest rates applicable to different types of transactions (e.g., purchases, balance transfers, credit
card cheque transactions and cash transactions) and the ways in which customers will be told about
changes in interest rates; and
• Sufficient details to enable customers to pay on time, including via automated payments. Subscribers
should also ensure that, where customers are offered the facility to pay by cheque by post, sufficient time
is given to allow payments to be made in time, taking account of the postal delivery system and the length
of the clearing cycle.
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Chip and PIN
75. Subscribers should issue the customer’s PIN separately from their card.
76. Subscribers should have systems in place to allow customers to change their PIN and should tell customers how to do
so, for example in account opening packs or on PIN notifications.
77. Subscribers should make reference to the availability of alternatives to chip and PIN in materials accompanying card
issuance and in any discussion with the customer where they express difficulty with using a PIN.
Interest rates
78. Subscribers should make current credit card interest rates available to customers via one or more of the following:
• a telephone helpline;
• a website;
• notices in branches; or
• by asking staff.
79. Subscribers should inform customers about changes to the interest rates on their credit card in compliance with the
relevant regulatory requirement applying to the subscriber’s credit card terms.
Risk-based repricing
This section applies only to credit cards for personal customers where the interest rate is determined individually in accordance
to the customer’s risk profile.
80. Subscribers should not increase the standard interest rate on a credit card within the first 12 months after the account
is opened4. Subscribers should not increase the interest rate on a credit card more often than once every 6 months
after its first year of operation.
81. If, after the first year of operation, a subscriber decides to reprice a customer’s credit card it should undertake the
following procedures prior to any increase:
• Give the customer at least 30 days advance notice of the increase in the interest rate;
• Give the customer options which include closing the credit card account and repaying the balance at the
existing interest rate, within a reasonable period;
• Explain, if asked by the customer, why the interest rate is being increased; and
• Consider offering an alternative product (if there is one available) at an equivalent or lower rate of interest.
82. Subscribers should not increase the interest rate on a credit card if the personal customer:
• has failed to make two or more consecutive minimum monthly repayments;
• has agreed a repayment plan for the account; or
• is engaging with a not-for-profit debt agency to discuss a repayment plan and the issuer has been formally
notified.
83. Further guidance on dealing with cases of financial difficulty is included in Section 9.
4 This requirement does not apply to an introductory promotional APR that reverts to a standard APR within the first 12 months
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Credit card limits
84. Before giving a customer a credit limit, or increasing an existing limit, subscribers should assess whether they feel the
customer will be able to repay it. Subscribers should follow The UK Cards Association best practice guidelines for
credit card limit increases UK Cards Association - Best practice guidelines
85. Subscribers should give customers notice if they increase the credit limit on their credit card and explain how
customers can refuse the increase.
86. Customers can contact the subscriber to reduce their credit card limit or opt-out of the increase.
87. Customers can request an increase to their credit card limit. The request should be considered after subscribers have
made appropriate checks.
88. Where an emergency increase to a credit card limit is granted (i.e., when a transaction goes for authorisation and will
take the customer over their pre-agreed limit) the issuer should always assess the customer’s ability to repay.
89. Issuers should advise customers that checks are made before a limit is increased (the method and timing of advice
will be at the issuer’s discretion).
90. Credit card limit increases should not be offered on accounts that are in arrears and should not be granted for
accounts that fall below credit scoring thresholds.
91. Subscribers should periodically review customers’ credit card limits using credit reference agency and internal data.
The requirement to use CRA data does not apply in specialist customer segments, such as private banking, where
use of credit reference agency data is not always appropriate.
92. Where the subscriber feels it is appropriate, the credit card limit should be reduced and notification given to the
customer.
Credit card promotional period
93. If a credit card has an introductory promotional rate the expiry date of the introductory promotional offer should be
shown on the front of the statement or in a separate, prominent personal notification to the customer. This should be
given between four and eight weeks before the offer expires.
94. It is acceptable to exceed the four or eight week period if the best way to provide information about the expiry of an
introductory promotional rate is by a message in, or with, a monthly statement.
95. This requirement does not apply where the customer is in breach of the terms and conditions of the account and the
subscriber is concerned that giving the customer warning that the promotional period is about to end may result in
abuse of the card, or where the account is not being used and the customer is not receiving a monthly statement.
Credit card statements
96. Firms should provide customers with a monthly statement for their credit card unless the account has a zero balance
and has not been used. The monthly statement will include information about transactions since the last statement
date, any interest which applies, the minimum repayment and other useful information compliant with the Consumer
Credit Act 2006, such as the allocation of payments.
97. Subscribers should follow The UK Cards Association Best Practice Guidelines for the Cardholder Statement Summary
Box UK Cards Association - Best practice guidelines
98. There are a number of specific pieces of information which should be included on every credit card statement (and
where appropriate on a link from an electronic statement):
• Sufficient details to enable customers to pay on time, including via automated payments;
• The current interest rate should be printed on each statement. Also, if more than one interest rate applies
to an outstanding balance (for example, where one rate applies to a transferred balance and different rates
to new borrowing and cash transactions) this should be made clear;
• A clear statement that if the account is not fully cleared, interest will be charged on the total value of the
statement, and not just on the outstanding balance;
• A clear statement that interest will be charged on a daily basis and that interest payments therefore
increase the longer payment is delayed (even before the monthly payment date);
15
• A brief summary on the allocation of monthly payments on the front or back of the statement (or a link from
an online statement);
• The front of each credit card statement should show a cash figure indicative of the amount of interest
which would be payable by the customer if they paid the minimum amount and it reached the subscriber
on the last day for payment;
• A warning about the risk of only making minimum payments – this should be worded as follows, ‘If you
make only the minimum payment each month, it will take you longer and cost you more to clear your
balance.’
99. In addition, in the event that a customer has missed a payment, subscribers should also include in any notification
sent to a customer in respect of missing the first payment reference to the option of paying by automated payment to
avoid missing future payments.
Credit card repayments
100. Subscribers should ensure that the minimum monthly repayment covers more than that month’s interest. This means
that the minimum repayment will cover that month’s interest and a proportion of the balance outstanding from the
previous month.
101. The principle should be that the minimum repayment on a credit card should reduce month by month if there have
been no further transactions on the card and the lower minimum payment threshold of the card has not been reached,
assuming all other conditions of the product remain unchanged. The term ‘transactions’ includes any fees, charges or
PPI premiums incurred on the card.
102. The minimum payment amount on the account should be clearly shown. This amount should normally be sufficient to
avoid negative amortisation over a period of 12 months (i.e., the sum of 12 minimum payments would exceed the sum
of additional interest added to the account over the same 12 month period).
103. It is acceptable for the minimum payment amount to be calculated as a percentage of the balance carried forward, so
long as the percentage would normally prevent negative amortisation. Other methods for calculating the minimum
payment are also acceptable, provided this principle can be demonstrated.
104. Subscribers may offer payment holidays and should clearly explain the terms and that customers can reject the
holiday by continuing payment. Where a payment holiday is provided the minimum repayment afterwards should be
sufficient to avoid negative amortisation over a period of 12 months from the start of the holiday.
Credit card cheques
105. Subscribers should follow The UK Cards Association best practice guidelines for credit card cheques including the
provision of clear information through a summary box provided with all credit card cheques:
UK Cards Association - Best practice guidelines
106. New credit card customers should be given a first time opt-out from receiving credit card cheque mailings.
107. When credit card cheques are provided the customer should be given prominent information about how to opt out of
receiving cheques and how to destroy unwanted credit card cheques and supporting material.
108. The following customers should not be issued credit card cheques:
• Customers who are in arrears or over-limit5;
• Customers with limited scope to borrow more or who are at their limit;
• Customers who have opted out of receiving cheques; and
• Accounts where there are fraudulent activities or lost/stolen procedures pending.
109. Subscribers should not send out unsolicited credit card cheques with a pre-completed amount.
5 This means customers who are in arrears with their payments or over-limit at the time of selection for receipt of credit card cheques.
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110. In addition to the summary box, subscribers should clearly and transparently highlight in the main body of any
communication accompanying the provision of credit card cheques the following (where applicable):
• Credit card cheques do not provide the same level of consumer protection as a normal credit card
purchase;
• The transaction fee per cheque;
• Whether there is an interest free period;
• How to opt-out of receiving credit card cheques in the future; and
• An alert to the Summary Box (e.g. “see important information overleaf”)
Unauthorised transactions
111. If the subscriber agrees that a credit card transaction has genuinely not been authorised by the customer then any
interest that may have been charged on this transaction will be refunded. Interest will not be refunded if the customer
has acted fraudulently or with gross negligence.
112. Unless the subscriber can show that the customer acted fraudulently or with gross negligence, their liability for their
credit card being misused will be limited as follows:
• If someone else uses the card, before the customer informs the subscriber that it has been lost or stolen or
that someone else knows the PIN, the most the customer will have to pay is £50;
• If someone else uses the card details without the customer’s permission, and the card has not been lost or
stolen, the customer will not have to pay anything;
• If someone else uses the card details without the customer’s permission for a transaction where the
cardholder does not need to be present (for example, buying something over the internet), the customer
will not have to pay anything; and
• If the card is used before the customer has received it, the customer will not have to pay anything.
113. The second bullet refers to fraudulent situations where, for example, a customer’s card has been cloned. Unless the
customer has acted fraudulently or with gross negligence (which the subscriber must prove – see below), the
customer is liable for a maximum of £50 in total (i.e. not for each transaction) before they give notification of loss, etc.,
if the card is out of their possession.
114. If card details are misused while the card is still in the customer’s possession (i.e., it has not been lost or stolen), the
customer cannot be liable, unless they have acted fraudulently or with gross negligence. This would include misuse
of card details in the case of distance transactions (this reflects the requirements of the EU Distance Selling Directive).
Under the Consumer Credit Act 1974, if the card was used as a credit token, then the consideration of gross
negligence is irrelevant.
115. This provision confirms that the burden of proof lies with the subscriber and not with the customer, so the subscriber
will have to provide proof if necessary.
17
Section 7: Loans
Declining an application
116. If a customer’s loan application is declined, the subscriber should explain the main reason if asked by the customer.
This could be provided in writing or electronically, if requested.
117. The written explanation could be given in the form of a leaflet if this is sufficiently focused. In regard to refusals based
on credit scoring, the Code Sponsors’ Guide to Credit Scoring (in particular, section 6 of the Guide) refers.
Subscribers should have regard to the potential for financial crime in the information they provide and will want to
avoid compromising their security procedures.
118. If, after declining an application for credit, subscribers wish to refer a customer to another lender, they should make
the customer aware that a referral is not an indication that a subsequent application for credit will be successful.
Guarantees for personal and micro-enterprise lending
119. Regular financial information about the person on whose behalf a guarantee/indemnity or other security is given
should always be made available to the guarantor or granters of third party security (‘granters’), so that they can
assess the likelihood of being called upon to pay, as long as permission is given and confidentiality is not breached.
120. If the guarantor or granter requests confidential financial information (with the exception of the current level of liability),
such as details of balances, copy statements, etc, the customer’s consent should first be obtained.
121. It is important that guarantors or granters receive independent legal advice to help them understand the full nature of
their commitment and the potential implications of their decision. Case law on this issue is well developed and
subscribers should encourage, as far as possible, potential guarantors or granters to take independent advice.
Subscribers may wish to go further than what is covered in this section and require a potential guarantor or granter
who refuses to take legal advice to sign a declaration to that effect. In any case, the recommendation to take
independent legal advice, and the potential consequences of their decision, should be stated clearly on all appropriate
documents that the guarantor or granter is asked to sign.
122. In relation to guarantees/indemnities, subscribers must also inform guarantors or granters that, by giving the
guarantee/indemnity or other third party security, they may have to pay instead of or as well as the customer.
Subscribers must also tell the guarantor the extent of their liability, including the addition of interest and charges after
demand has been made. When independent legal advice has been given, it may be assumed that the solicitor will
have explained the nature of all monies and continuing security, if appropriate. Depending on the nature and structure
of facilities, subscribers may choose to explain these features to those customers who have declined independent
legal advice (and should always do so when requested by any guarantor).
123. Subscribers should not take an unlimited guarantee from an individual other than to support a customer’s liabilities
under a merchant agreement. However, other forms of unlimited third party security may be taken from an individual,
provided that the limit of the granter’s liability is explained in a side letter. This is to avoid the need to take fresh
security, with the associated expense and inconvenience to customers, each time a facility changes.
124. ‘Unlimited’ applies to the capital amount of the loan and excludes interest, charges and arrears etc. An explanation of
this should be covered in the guarantee/indemnity or other security documents that the guarantor is asked to sign.
125. In the case of limited companies, which are part of the same group structure, subscribers may continue to take
unlimited guarantees from the constituent companies in support of borrowing by other companies in the group.
18
Security for micro-enterprise lending
126. If a subscriber asks for security to support a business’s borrowing or other liabilities it should tell the business why it
needs the security and confirm what is needed in writing. Documents should be easy to understand and avoid
technical language whenever possible. Micro-enterprise customers should have the opportunity to discuss with the
subscriber anything about which they are unsure.
The Lending Code
Setting standards for banks, building societies and credit card
providers
November 2009
2
To discuss this code you can contact:
British Bankers’ Association
Pinners Hall
105-108 Old Broad Street
London
EC2N 1EX
Email: info@bba.org.uk
Tel: 020 7216 8800
Building Societies Association
6th Floor, York House
23 Kingsway
London
WC2B 6UJ
Email: information@bsa.org.uk
Tel: 020 7520 5900
UK Cards Association
5th Floor, Mercury House, Triton Court
14 Finsbury Square
London
EC2A 1LQ
Email / contact through the website:
UK Cards Association - Homepage
3
Contents
Introduction 4
Section 1 Key commitments 5
Section 2 Communications and financial promotions 6
Section 3 Credit reference agencies 8
Section 4 Credit assessment 9
Section 5 Current accounts overdrafts 10
Section 6 Credit cards 12
Section 7 Loans 17
Section 8 Terms and conditions 19
Section 9 Financial difficulties 20
Section 10 Complaints 25
Section 11 Monitoring 25
Annex A Summary box for unsecured loans 26
Annex B Statement of Principles for micro-enterprises 30
4
Introduction
1. This is a self-regulatory Lending Code setting minimum standards of good practice when dealing with the following
customers in the UK:
• Consumers;
• Micro-enterprises1; or
• Charities with an annual income of less than £1 million.
2. The Lending Code covers good practice in relation to:
• loans;
• credit cards;
• charge cards2; and
• current account overdrafts.
It does not apply to merchant services, non-business borrowing secured on land, or to sales finance.
3. The Code applies to lending in sterling. However, subscribers are not precluded from applying the Code’s standards to
lending in other currencies.
4. Compliance with the terms of this Code is independently monitored and enforced by the Lending Standards Board
(LSB). A list of subscribers to the Code and contact details for the LSB can be found at
Lending Standards Board.
5. This Code has not been reviewed by the FSA and the FSA will not have regard to this Code when exercising its
regulatory functions.
6. This Code sets standards of good lending practice but subscribers must - at all times - ensure they are compliant with
the Consumer Credit Acts and associated Regulations as well as other relevant legislation (such as the Payment
Services Regulations (PSRs) and, for consumers, the Consumer Protection from Unfair Trading Regulations).
7. It is important that, when considering how the Code will affect products and services, all delivery channels are catered
for. The Code applies regardless of how a product or service is delivered.
8. It is the responsibility of subscribers to ensure that any third party or agent acting on their behalf complies with the Code
in relation to any products or services covered by this Code.
9. Subscribers should make information available to customers to inform them that the subscriber follows the Lending
Code. This should include providing a link to the Code on the subscriber’s website and, where appropriate, making
reference to the Code within relevant literature (for example, within an account-opening pack). The subscriber’s website
and relevant literature should be amended to include reference to this Code within a six month transitional period that
ends on 30 April 2010.
10. Unless otherwise specified all references in this Code to ‘customer’ or ‘customers’ apply to personal and microenterprise
customers.
11. This Code uses the terms ‘provide’, ‘give’, ‘tell’ and ‘make available’ interchangeably. These terms are not defined to
specify how information is made accessible to the customer. Instead, firms should determine the most appropriate way
for customers to access information at the right time in order to make informed decisions.
12. However, where this Code requires that certain information is given to customers ‘personally’, this means that some
form of notification is given or sent to them, rather than being told by a general notice or advertisement. Such
notification could be made by letter, by e-mail or by an alternative method that reflects the manner in which the product
or service is normally operated.
1 A micro-enterprise is defined as a business that employs fewer than 10 persons and has a turnover or annual balance sheet that does not exceed €2
million. For more information see http://ec.europa.eu/enterprise/enter...user_guide.pdf
2 Charge cards are subject to the Key Commitments and general provisions of this Code, where a requirement is not specific to another product.
5
Section 1: Key commitments
13. Subscribers will act fairly and reasonably in all their dealings with customers by, as a minimum, meeting all the
commitments and standards in this Code. The key commitments are shown below.
• Subscribers will make sure that advertising and promotional literature is fair, clear and not misleading and
that customers are given clear information about products and services.
• Customers will be given clear information about accounts and services, how they work, their terms and
conditions and the interest rates that apply to them.
• Regular statements will be made available to customers (if appropriate). Customers will also be informed
about changes to the interest rates, charges or terms and conditions.
• Subscribers will lend money responsibly.
• Subscribers will deal quickly and sympathetically with things that go wrong and act sympathetically and
positively when considering a customer’s financial difficulties.
• Personal information will be treated as private and confidential, and subscribers will provide secure and
reliable banking and payment systems.
• Subscribers will make sure their staff are trained to put this Code into practice.
6
Section 2: Communications and financial
promotions
14. This section applies to financial promotions for lending products and services and communications to customers
during the lifetime of the product or service.
15. The key consideration for subscribers is to ensure communications are clear, fair and not misleading and that
customers are provided with appropriate information at the right time in order to make informed decisions.
16. Subscribers should ensure that financial promotions are compliant with relevant advertising legislation and industry
codes of practice, such as the Consumer Credit (Advertisements) Regulations 2004 and the Committee of Advertising
Practice Codes.
17. For promotions to personal customers that are made at a distance subscribers should follow the requirements of the
Financial Services (Distance Marketing) Regulations 2004.
18. For direct sales of credit cards, subscribers should follow the relevant UK Cards Association best practice guidelines,
which can be found at UK Cards Association - Best practice guidelines
19. For some unsecured personal loans, key product information within financial promotions and pre-sale information
should be available in a standard summary box. Details of which promotions and communications are covered and
the format of the summary box are included in Annex A (p.26).
20. To ensure financial promotions and communications are clear, fair and not misleading subscribers should have regard
to:
• presenting information in plain language and wherever possible avoiding the use of technical or legal
language
• the way the communication or financial promotion is being made e.g. direct mail, letter, email, text
message, branch or web material
• the type and complexity of information that is being presented, the actions the information might elicit from
the customer, the channels by which the information is accessible and the passage of time, if any, since
the information was last provided
• the appropriate format and content of the communication based on its intended audience. For instance, a
communication to a personal customer might include different information to that for a micro-enterprise,
where needs may differ.
21. Micro-enterprise customers should be given a copy of the BBA Statement of Principles3 when they become a
customer and at any time they request a copy. The Statement is attached as Annex B for your information and can be
ordered from the BBA website at BBA Association
Marketing and advertising
22. Subscribers must have the customer’s specific permission to pass the customer’s name and address to any company,
including other companies in the subscriber’s group, for marketing purposes.
23. There are various acceptable methods of obtaining the customer’s consent. It may, for example, be given by way of a
clear and unambiguous clause above a signature box on an application form, or a positive ‘click’ on an internet
application, or a positive reply to a specific question on the telephone. Subscribers should also be aware of the
Information Commissioner’s Guidance for Direct Marketers and telecoms licensing requirements. Consent should not
be required in return for the provision of standard account services.
24. Subscribers can tell customers about another company’s services or products but no confidential information about
the customer should be passed to the other company by the subscriber without customer consent.
25. If the customer is interested in the other company’s products or services and they respond, then they are themselves
releasing confidential information. For example, a subscriber may have a subsidiary which offers general insurance
products. The subscriber could send their customer details of those products. The subscriber should make clear to
the customer that the third party is a separate legal entity, and is not a division of the subscriber’s company, since this
will not always be clear to the customer from the name of the third party. It is only if the customer chooses to respond
3 Subscribers have a six month transitional period to replace the Statement of Principles which references the Banking Code, with the updated version
at Annex B, which references the Lending Code.
7
positively that the subsidiary will learn any details about the customer, or even that the customer has been sent the
information in the first place.
26. Customers must be given the opportunity to opt out of receiving the subscriber’s marketing information. They should
be reminded of this option at least once every three years.
27. Account opening forms (whether paper, internet-based, questions over the telephone, or other ‘welcome pack’
information) should contain a section or question to allow customers to signify that they do not wish to receive
‘marketing approaches.’ Examples of marketing approaches include literature through the post, e-mails and telephone
calls. The types of approaches could be listed so the customer can object to some rather than all.
28. ‘Marketing approaches’ means information designed to sell additional products and services. This means that if there
is a clear intention to sell a product or service which the customer does not already have it will be caught by this
provision, however it is sent. However, the provision of information relating to product or service improvements or the
availability of new channels (e.g. that the customer’s existing account(s) can be accessed via the internet) are
excluded from this provision, as are changes to administrative details, such as new branch or telephone helpline
opening hours.
29. As an illustration, advising a customer that they have free annual travel insurance with their credit card is not a
marketing approach, whereas promoting an enhanced credit card to a standard credit cardholder is.
30. Subscribers should consider carefully whether the purpose of a customer communication is operational or
promotional. Where ‘combined’ messages are used, a non-promotional version may be needed for customers who
have opted out of receiving marketing material.
31. Express consent is not required to send this information, but customers must be given a clear opportunity to opt out of
receiving it. Subscribers should, however, be aware (in the case of direct marketing telephone calls) of the
Information Commissioner’s Guidance in relation to the Privacy and Electronic Communications (EU Directive)
Regulations 2003.
32. It will not be sufficient to state only in terms and conditions that customers can opt out by writing to a particular
address; however, provided it is clear and unambiguous, a notification can be included in, for example, an account
opening pack. In addition, existing customers have to be reminded, at least once every three years, that they can opt
out of receiving this information. This reminder could be by letter, e-mail, telephone or other method, such as being
included in an annual mailing, provided it is sent personally to each customer and is clear. Whatever notification
method is chosen, subscribers should ensure they are familiar with the various pieces of guidance issued by the
Information Commissioner under the Data Protection Act 1998.
33. The three year notice can also be covered by subscribers adopting a more frequent approach, for example on all
statements and/or marketing material.
8
Section 3: Credit reference agencies
34. When customers apply for a lending product, subscribers should tell them when they may pass the customer’s details
to credit reference agencies (CRAs) and the checks that subscribers may make with them. For example, customers
should be told if a record of the search is kept at the CRA and, if so, that this could impact the customer’s ability to
obtain credit elsewhere within a short period of time.
35. Subscribers can give CRAs default information about a customer’s debts if:
• the customer has fallen behind with their payments
• the amount owed is not being disputed by the customer; and
• the customer has not made a proposal that satisfies the subscriber for repaying the debt following the
subscriber’s formal demand.
36. Whether or not notice was given by the subscriber and consent was obtained from the customer at the time the
account was opened, disclosure of default information can be made. But, in all cases, the customer must be given
further notice of the intention to disclose the information at least 28 days before the disclosure is made (for example,
when a default notice or formal demand is given). At the same time, customers must be given an explanation about
how default information registered against them may affect their ability to obtain credit in the future. This notice will
mean that customers have 28 days to try to repay or come to some arrangement with the subscriber before default
information is passed to the CRA.
37. For the purposes of the second bullet in paragraph 35, a customer dispute is relevant if it refers to the amount of
money owed by the customer and is genuine, reasonable and unresolved. Further detail is provided in paragraph 43
of the ICO guidance referenced below.
38. Subscribers should refer to the Information Commissioner’s Data Protection Technical Guidance on Filing Defaults
with CRAs (Information Commissioner's Office - ICO).
39. With the customer’s permission, subscribers can share information about the day-to-day running of the customer’s
account, including positive data, with CRAs where the firm has agreed to follow the industry’s Principles of
Reciprocity. It is consistent with the legal position that any other disclosure to CRAs can be made only with the
customer’s consent, usually by way of a declaration on an application form. The Information Commissioner accepts
that such permission may be made a condition of borrowing.
40. The requirement to share data does not apply in specialist customer segments such as private banking where sharing
CRA data is not always appropriate.
41. See also the Information Commissioner’s Guidance on the Data Protection Act 1998 which requires, in the absence of
consent, one of eleven other conditions to be met. The ‘permission’ can be covered in a number of ways, for example,
in terms and conditions, in an account opening pack, or it can be obtained at the time the disclosure is made. (Useful
information can be found at Information Commissioner's Office - ICO)
42. If a customer asks, subscribers should tell them how to get a copy of the information that CRAs hold about them, or
should give the customer one of their leaflets that explain how credit referencing works.
9
Section 4: Credit assessment
43. Before lending any money; granting or increasing an overdraft, or other borrowing, subscribers should assess whether
the customer will be able to repay it.
Personal customers
44. For personal customers, this assessment should include consideration of information from CRAs plus at least one of
the following three points:
• The customer’s income and financial commitments.
• How they have handled their finances in the past.
• Internal credit scoring techniques.
Additional useful considerations could include:
• any security provided; and
• why the customer wants to borrow the money and for how long.
45. Assessment may also include other checks that have not been listed above.
46. This requirement does not apply in specialist customer segments such as private banking where use of CRA data is
not always appropriate.
47. Where income is one of the factors considered when assessing ability to repay a personal loan and the loan is agreed
only if the income of another person is taken into account, normally the loan should be provided on a joint and several
basis. However there may be circumstances when it is appropriate to provide a loan on a sole basis.
48. Subscribers should ensure they are familiar with the requirements of the Code Sponsors’ Guide to Credit Scoring and
the explanations that need to be given to customers if credit scoring is used, and also the Information Commissioner’s
Guidance on Credit Referencing.
Micro-enterprise customers
49. For micro-enterprise customers, this assessment may include looking at:
• why the business wants to borrow the money
• the business plan and accounts
• the business’s cash flow, profitability and existing financial commitments
• any personal financial commitments which may affect the business
• how the customer has handled their finances in the past
• information from credit reference agencies and, with the customer’s permission, others, such as other
lenders and the customer’s landlord (where relevant)
• credit-assessment techniques, such as credit scoring
• any security provided.
50. Subscribers should also ensure that they follow the BBA Statement of Principles which sets out how banks should
work together with micro-enterprises. The Statement is included as Annex B.
51. If the subscriber requires a micro-enterprise customer to hold a current account in order to get a loan the reasons for
this should be explained to the customer before the loan application is completed.
10
Section 5: Current account overdrafts
Pre-sale information
52. When providing customers with information, before a contract is entered into, about a current account offering an
overdraft facility, subscribers should include clear, fair and not misleading information outlining the availability of the
overdraft, including whether there are qualifying criteria for accessing the overdraft.
53. The customer must be provided, where relevant, with details of the interest rate to be applied or, if reference interest
rates are to be used, the method for calculating the actual interest and the relevant date and index or base for
determining such reference interest rates.
54. This information must be provided either in good time, before the customer is bound by the contract; where the
contract concludes at the payment service user’s request, using a means of distance communication, immediately
after the conclusion of the contract.
Point of sale and post-sale information
55. If a customer is offered an overdraft, or an increase in their existing overdraft limit, subscribers should tell the
customer if the overdraft is repayable on demand. The explanation could be contained in a facility letter or the terms
and conditions.
56. If a customer’s overdraft application is declined, the subscriber should explain the main reason why if asked by the
customer. This could be provided in writing or electronically, if requested.
57. The written explanation could be given in the form of a leaflet if this is sufficiently focused. With regard to refusals
based on credit scoring, the Code Sponsors’ Guide to Credit Scoring refers and can be found at:
BBA Association - Guide to Credit Scoring . Subscribers should have regard to the potential for
financial crime in the information they provide and will want to avoid compromising their security procedures.
Interest rates
58. Subscribers should make information about overdraft interest rates available to customers via:
• a telephone helpline;
• a website;
• notices in branches; or
• information from staff.
59. If an overdraft is provided subscribers should give customers information on the interest rates which apply and when
interest will be collected. If customers ask, subscribers should also give a full explanation of how interest is worked
out.
60. Before taking interest, subscribers should give at least 14 days notice of how much will be taken.
61. Subscribers should inform customers about changes to the interest rates on their overdraft in compliance with the
relevant regulatory requirement applying to the subscriber’s overdraft terms.
62. Within 3 working days of a rate change, notices should be put in branches and newspapers. To help compare rates,
the old rate should also be included.
63. Where an overdraft interest rate tracks changes to an index rate, the requirement to inform customers of changes
does not apply.
11
Charges
64. Subscribers should make available to customers information about any charges for overdrafts via:
• a telephone helpline;
• a website; or
• by asking staff.
65. Subscribers should tell customers personally at least 30 days before increasing an overdraft charge or introducing a
new overdraft charge.
66. Further guidance on charges information for current accounts, which are regulated under the Payment Services
Regulations, can be found at: http://www.fsa.gov.uk/pubs/other/PSD_approach.pdf
12
Section 6: Credit cards
Pre-sale information
67. Information provided to customers should be clear, fair and not mis-leading. Subscribers should present information
about the main features of a credit card in a summary box, as set out in The UK Cards Association best practice
guidelines UK Cards Association - Best practice guidelines
68. The summary box should be provided to the customer prior to their acceptance of the credit agreement.
69. All integral features of the product, such as introductory rates, should be included in the summary box. Information on
free-standing or optional product features, such as Payment Protection Insurance, credit card cheques or other freestanding
product features should not be shown in the summary box. Information on such free-standing features
should be provided separately and should comply with any relevant best practice guidelines.
70. Pre-contract, the summary box should appear prominently on, or within, any application form/pack, acting as a final
reminder for the consumer. This will typically cover direct mail pieces, free-standing leaflets, inserts etc. but not media
such as television, radio, cinema or outdoor advertising.
71. For internet applications, a click-through to a page containing the summary box should be available.
72. Credit card issuers are not precluded from using the summary box in any advertising media they choose or at any
point post-contract.
73. Subscribers should only send a credit card to a customer if they request one or to replace a credit card the customer
already has.
Point of contract information
74. Before a customer enters into the contract for a credit card (and when they accept the product for the first time) they
should be given information relating to the following:
• An explanation of how interest is calculated and charged; for example, whether it is charged on the full
statement balance or only on any balance remaining after the customer has made the monthly payment;
• The PSRs require that the customer must be provided, where relevant, with details of the interest and
exchange rates to be applied or, if reference interest and exchange rates are to be used, the method for
calculating the actual interest and the relevant date and index or base for determining such reference
interest or exchange rates;
• This information must be provided either in good time before the customer is bound by the contract, or
where the contract is concluded at the payment service user’s request, using a means of distance
communication, immediately after the conclusion of the contract;
• Details of how monthly payments are applied to any outstanding balance across transaction types
including promotional offers;
• An explanation of recurring transactions;
• details of charges for the day-to-day running of the account, including any annual fee, dormancy fee,
charge for exceeding credit limit, charge for delayed monthly payment, charges for overseas transactions,
cash withdrawal fees for card usage at an ATM or over the counter, fees for any cash equivalent
transactions, balance transfer fees, returned payment fees due to insufficient funds, and any other
applicable fees;
• The distinction between being the principal cardholder and an additional cardholder should be explained
i.e., that the principal cardholder is responsible for all spending, including that by additional cardholders,
and is responsible for repayments on the credit card;
• The interest rates applicable to different types of transactions (e.g., purchases, balance transfers, credit
card cheque transactions and cash transactions) and the ways in which customers will be told about
changes in interest rates; and
• Sufficient details to enable customers to pay on time, including via automated payments. Subscribers
should also ensure that, where customers are offered the facility to pay by cheque by post, sufficient time
is given to allow payments to be made in time, taking account of the postal delivery system and the length
of the clearing cycle.
13
Chip and PIN
75. Subscribers should issue the customer’s PIN separately from their card.
76. Subscribers should have systems in place to allow customers to change their PIN and should tell customers how to do
so, for example in account opening packs or on PIN notifications.
77. Subscribers should make reference to the availability of alternatives to chip and PIN in materials accompanying card
issuance and in any discussion with the customer where they express difficulty with using a PIN.
Interest rates
78. Subscribers should make current credit card interest rates available to customers via one or more of the following:
• a telephone helpline;
• a website;
• notices in branches; or
• by asking staff.
79. Subscribers should inform customers about changes to the interest rates on their credit card in compliance with the
relevant regulatory requirement applying to the subscriber’s credit card terms.
Risk-based repricing
This section applies only to credit cards for personal customers where the interest rate is determined individually in accordance
to the customer’s risk profile.
80. Subscribers should not increase the standard interest rate on a credit card within the first 12 months after the account
is opened4. Subscribers should not increase the interest rate on a credit card more often than once every 6 months
after its first year of operation.
81. If, after the first year of operation, a subscriber decides to reprice a customer’s credit card it should undertake the
following procedures prior to any increase:
• Give the customer at least 30 days advance notice of the increase in the interest rate;
• Give the customer options which include closing the credit card account and repaying the balance at the
existing interest rate, within a reasonable period;
• Explain, if asked by the customer, why the interest rate is being increased; and
• Consider offering an alternative product (if there is one available) at an equivalent or lower rate of interest.
82. Subscribers should not increase the interest rate on a credit card if the personal customer:
• has failed to make two or more consecutive minimum monthly repayments;
• has agreed a repayment plan for the account; or
• is engaging with a not-for-profit debt agency to discuss a repayment plan and the issuer has been formally
notified.
83. Further guidance on dealing with cases of financial difficulty is included in Section 9.
4 This requirement does not apply to an introductory promotional APR that reverts to a standard APR within the first 12 months
14
Credit card limits
84. Before giving a customer a credit limit, or increasing an existing limit, subscribers should assess whether they feel the
customer will be able to repay it. Subscribers should follow The UK Cards Association best practice guidelines for
credit card limit increases UK Cards Association - Best practice guidelines
85. Subscribers should give customers notice if they increase the credit limit on their credit card and explain how
customers can refuse the increase.
86. Customers can contact the subscriber to reduce their credit card limit or opt-out of the increase.
87. Customers can request an increase to their credit card limit. The request should be considered after subscribers have
made appropriate checks.
88. Where an emergency increase to a credit card limit is granted (i.e., when a transaction goes for authorisation and will
take the customer over their pre-agreed limit) the issuer should always assess the customer’s ability to repay.
89. Issuers should advise customers that checks are made before a limit is increased (the method and timing of advice
will be at the issuer’s discretion).
90. Credit card limit increases should not be offered on accounts that are in arrears and should not be granted for
accounts that fall below credit scoring thresholds.
91. Subscribers should periodically review customers’ credit card limits using credit reference agency and internal data.
The requirement to use CRA data does not apply in specialist customer segments, such as private banking, where
use of credit reference agency data is not always appropriate.
92. Where the subscriber feels it is appropriate, the credit card limit should be reduced and notification given to the
customer.
Credit card promotional period
93. If a credit card has an introductory promotional rate the expiry date of the introductory promotional offer should be
shown on the front of the statement or in a separate, prominent personal notification to the customer. This should be
given between four and eight weeks before the offer expires.
94. It is acceptable to exceed the four or eight week period if the best way to provide information about the expiry of an
introductory promotional rate is by a message in, or with, a monthly statement.
95. This requirement does not apply where the customer is in breach of the terms and conditions of the account and the
subscriber is concerned that giving the customer warning that the promotional period is about to end may result in
abuse of the card, or where the account is not being used and the customer is not receiving a monthly statement.
Credit card statements
96. Firms should provide customers with a monthly statement for their credit card unless the account has a zero balance
and has not been used. The monthly statement will include information about transactions since the last statement
date, any interest which applies, the minimum repayment and other useful information compliant with the Consumer
Credit Act 2006, such as the allocation of payments.
97. Subscribers should follow The UK Cards Association Best Practice Guidelines for the Cardholder Statement Summary
Box UK Cards Association - Best practice guidelines
98. There are a number of specific pieces of information which should be included on every credit card statement (and
where appropriate on a link from an electronic statement):
• Sufficient details to enable customers to pay on time, including via automated payments;
• The current interest rate should be printed on each statement. Also, if more than one interest rate applies
to an outstanding balance (for example, where one rate applies to a transferred balance and different rates
to new borrowing and cash transactions) this should be made clear;
• A clear statement that if the account is not fully cleared, interest will be charged on the total value of the
statement, and not just on the outstanding balance;
• A clear statement that interest will be charged on a daily basis and that interest payments therefore
increase the longer payment is delayed (even before the monthly payment date);
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• A brief summary on the allocation of monthly payments on the front or back of the statement (or a link from
an online statement);
• The front of each credit card statement should show a cash figure indicative of the amount of interest
which would be payable by the customer if they paid the minimum amount and it reached the subscriber
on the last day for payment;
• A warning about the risk of only making minimum payments – this should be worded as follows, ‘If you
make only the minimum payment each month, it will take you longer and cost you more to clear your
balance.’
99. In addition, in the event that a customer has missed a payment, subscribers should also include in any notification
sent to a customer in respect of missing the first payment reference to the option of paying by automated payment to
avoid missing future payments.
Credit card repayments
100. Subscribers should ensure that the minimum monthly repayment covers more than that month’s interest. This means
that the minimum repayment will cover that month’s interest and a proportion of the balance outstanding from the
previous month.
101. The principle should be that the minimum repayment on a credit card should reduce month by month if there have
been no further transactions on the card and the lower minimum payment threshold of the card has not been reached,
assuming all other conditions of the product remain unchanged. The term ‘transactions’ includes any fees, charges or
PPI premiums incurred on the card.
102. The minimum payment amount on the account should be clearly shown. This amount should normally be sufficient to
avoid negative amortisation over a period of 12 months (i.e., the sum of 12 minimum payments would exceed the sum
of additional interest added to the account over the same 12 month period).
103. It is acceptable for the minimum payment amount to be calculated as a percentage of the balance carried forward, so
long as the percentage would normally prevent negative amortisation. Other methods for calculating the minimum
payment are also acceptable, provided this principle can be demonstrated.
104. Subscribers may offer payment holidays and should clearly explain the terms and that customers can reject the
holiday by continuing payment. Where a payment holiday is provided the minimum repayment afterwards should be
sufficient to avoid negative amortisation over a period of 12 months from the start of the holiday.
Credit card cheques
105. Subscribers should follow The UK Cards Association best practice guidelines for credit card cheques including the
provision of clear information through a summary box provided with all credit card cheques:
UK Cards Association - Best practice guidelines
106. New credit card customers should be given a first time opt-out from receiving credit card cheque mailings.
107. When credit card cheques are provided the customer should be given prominent information about how to opt out of
receiving cheques and how to destroy unwanted credit card cheques and supporting material.
108. The following customers should not be issued credit card cheques:
• Customers who are in arrears or over-limit5;
• Customers with limited scope to borrow more or who are at their limit;
• Customers who have opted out of receiving cheques; and
• Accounts where there are fraudulent activities or lost/stolen procedures pending.
109. Subscribers should not send out unsolicited credit card cheques with a pre-completed amount.
5 This means customers who are in arrears with their payments or over-limit at the time of selection for receipt of credit card cheques.
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110. In addition to the summary box, subscribers should clearly and transparently highlight in the main body of any
communication accompanying the provision of credit card cheques the following (where applicable):
• Credit card cheques do not provide the same level of consumer protection as a normal credit card
purchase;
• The transaction fee per cheque;
• Whether there is an interest free period;
• How to opt-out of receiving credit card cheques in the future; and
• An alert to the Summary Box (e.g. “see important information overleaf”)
Unauthorised transactions
111. If the subscriber agrees that a credit card transaction has genuinely not been authorised by the customer then any
interest that may have been charged on this transaction will be refunded. Interest will not be refunded if the customer
has acted fraudulently or with gross negligence.
112. Unless the subscriber can show that the customer acted fraudulently or with gross negligence, their liability for their
credit card being misused will be limited as follows:
• If someone else uses the card, before the customer informs the subscriber that it has been lost or stolen or
that someone else knows the PIN, the most the customer will have to pay is £50;
• If someone else uses the card details without the customer’s permission, and the card has not been lost or
stolen, the customer will not have to pay anything;
• If someone else uses the card details without the customer’s permission for a transaction where the
cardholder does not need to be present (for example, buying something over the internet), the customer
will not have to pay anything; and
• If the card is used before the customer has received it, the customer will not have to pay anything.
113. The second bullet refers to fraudulent situations where, for example, a customer’s card has been cloned. Unless the
customer has acted fraudulently or with gross negligence (which the subscriber must prove – see below), the
customer is liable for a maximum of £50 in total (i.e. not for each transaction) before they give notification of loss, etc.,
if the card is out of their possession.
114. If card details are misused while the card is still in the customer’s possession (i.e., it has not been lost or stolen), the
customer cannot be liable, unless they have acted fraudulently or with gross negligence. This would include misuse
of card details in the case of distance transactions (this reflects the requirements of the EU Distance Selling Directive).
Under the Consumer Credit Act 1974, if the card was used as a credit token, then the consideration of gross
negligence is irrelevant.
115. This provision confirms that the burden of proof lies with the subscriber and not with the customer, so the subscriber
will have to provide proof if necessary.
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Section 7: Loans
Declining an application
116. If a customer’s loan application is declined, the subscriber should explain the main reason if asked by the customer.
This could be provided in writing or electronically, if requested.
117. The written explanation could be given in the form of a leaflet if this is sufficiently focused. In regard to refusals based
on credit scoring, the Code Sponsors’ Guide to Credit Scoring (in particular, section 6 of the Guide) refers.
Subscribers should have regard to the potential for financial crime in the information they provide and will want to
avoid compromising their security procedures.
118. If, after declining an application for credit, subscribers wish to refer a customer to another lender, they should make
the customer aware that a referral is not an indication that a subsequent application for credit will be successful.
Guarantees for personal and micro-enterprise lending
119. Regular financial information about the person on whose behalf a guarantee/indemnity or other security is given
should always be made available to the guarantor or granters of third party security (‘granters’), so that they can
assess the likelihood of being called upon to pay, as long as permission is given and confidentiality is not breached.
120. If the guarantor or granter requests confidential financial information (with the exception of the current level of liability),
such as details of balances, copy statements, etc, the customer’s consent should first be obtained.
121. It is important that guarantors or granters receive independent legal advice to help them understand the full nature of
their commitment and the potential implications of their decision. Case law on this issue is well developed and
subscribers should encourage, as far as possible, potential guarantors or granters to take independent advice.
Subscribers may wish to go further than what is covered in this section and require a potential guarantor or granter
who refuses to take legal advice to sign a declaration to that effect. In any case, the recommendation to take
independent legal advice, and the potential consequences of their decision, should be stated clearly on all appropriate
documents that the guarantor or granter is asked to sign.
122. In relation to guarantees/indemnities, subscribers must also inform guarantors or granters that, by giving the
guarantee/indemnity or other third party security, they may have to pay instead of or as well as the customer.
Subscribers must also tell the guarantor the extent of their liability, including the addition of interest and charges after
demand has been made. When independent legal advice has been given, it may be assumed that the solicitor will
have explained the nature of all monies and continuing security, if appropriate. Depending on the nature and structure
of facilities, subscribers may choose to explain these features to those customers who have declined independent
legal advice (and should always do so when requested by any guarantor).
123. Subscribers should not take an unlimited guarantee from an individual other than to support a customer’s liabilities
under a merchant agreement. However, other forms of unlimited third party security may be taken from an individual,
provided that the limit of the granter’s liability is explained in a side letter. This is to avoid the need to take fresh
security, with the associated expense and inconvenience to customers, each time a facility changes.
124. ‘Unlimited’ applies to the capital amount of the loan and excludes interest, charges and arrears etc. An explanation of
this should be covered in the guarantee/indemnity or other security documents that the guarantor is asked to sign.
125. In the case of limited companies, which are part of the same group structure, subscribers may continue to take
unlimited guarantees from the constituent companies in support of borrowing by other companies in the group.
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Security for micro-enterprise lending
126. If a subscriber asks for security to support a business’s borrowing or other liabilities it should tell the business why it
needs the security and confirm what is needed in writing. Documents should be easy to understand and avoid
technical language whenever possible. Micro-enterprise customers should have the opportunity to discuss with the
subscriber anything about which they are unsure.
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