Guidance on the regulations implementing the Consumer Credit Directive AUGUST 2010

**Amethyst** · 27th August 2010, 14:31:PM

Re: Guidance on the regulations implementing the Consumer Credit Directive AUGUST 201

17. OVERDRAFTS
17.1 T
here are a number of changes to the CCA and associated regulations in relation to overdrafts. These apply to :
•
overdrafts which have been specifically agreed in advance of overdrawing – i.e. where the amount by which the account holder can overdraw on the current account has been determined in advance (generally called "authorised" overdrafts), and
•
the feature of a current account agreement that allows for the possibility of the account holder exceeding the balance in their current account or exceeding an agreed overdraft limit (generally referred to as "unauthorised", "tacit" or “not pre-arranged” overdrafts).
17.2 T
he former is defined in the implementing regulations as an "authorised overdraft agreement" and the latter is described as "a current account agreement where there is the possibility that the account-holder may be allowed to overdraw on the current account without a pre-arranged overdraft or exceed a pre-arranged overdraft limit".
17.3 I
n relation to authorised overdrafts, the regulations distinguish between "authorised business overdraft agreements" and "authorised non-business overdraft agreements"44 according to whether the agreement is entered into wholly or predominantly for the purposes of the borrower’s business45.
17.4 T
here are lighter touch requirements for authorised overdrafts which are repayable on demand or within three months (probably the case with all UK non-business overdrafts).
17.5 O
ther authorised non-business overdrafts (which are not repayable on demand or within three months) are treated in the same way as other forms of consumer lending and are not discussed further in this chapter.
17.6 O
verdrafts were previously exempt from Part V (entry into credit or hire agreements) of the CCA with the exception of section 56 on antecedent negotiations. This was by virtue of section 74(1)(b). The exemption was however subject to conditions specified in a determination by the OFT, including that certain information be provided to the borrower at the time or before the agreement was concluded. Section 74 is amended so that more of the requirements in Part V will now apply to authorised overdrafts and this is no longer dependent on an OFT determination46.
44 Regulation 19 of the EU Directive Regulations
45 The CCA applies only to certain business lending, namely credit up to £25,000 to sole traders, small partnerships and other unincorporated bodies
46 Regulations 17 and 20 of the EU Directive Regulations 72
Authorised non-business overdrafts repayable on demand or within three months
17.7 T
he following provisions of Part V of the CCA apply to authorised non-business overdrafts repayable on demand or within three months:
•
section 55 (disclosure of information regulations),
•
section 55B (assessment of creditworthiness),
•
section 55C (copy of draft agreement),
•
section 56 (antecedent negotiations),
•
section 60 (regulations on form and content of agreements) and
•
section 61B (duty to supply copy of overdraft agreement).
Pre-contractual information
17.8 R
egulations 10 and 11 of the Disclosure Regulations (made under section 55 of the CCA) apply to this type of overdraft, unless the agreement is secured on land or for credit exceeding £60,260.
17.9 R
egulation 10(3) sets out the information which must be disclosed to the borrower in good time before the agreement is made.
17.10 H
owever, regulation 10(4) provides that the full list of information set out in regulation 10(3) may not have to be given:
•
(a) where the agreement is made over the telephone (whether or not it is a distance contract),
•
(b) where it is made at the borrower's request using a means of distance communication (other than telephone) which would not enable the provision of the required information before the agreement is made, or
•
(c) where the borrower requests the overdraft to be made available with immediate effect.
17.11 I
n the case of (a), where a distance contract is made by telephone, the information set out in regulation 10(3) must be provided unless the borrower explicitly consents to receive the more limited information set out in regulation 10(5)47. In either case the information may be provided orally.
17.12 I
n the case of a non-distance contract made by telephone (for example where the contract is concluded over the telephone but oral representations were made previously in the borrower’s presence), the pre-contractual information can be limited to regulation 10(5)(b) and may be provided orally.
47 Regulation 37 of the Amendment Regulations
73
17.13 I
n the case covered by (b), a distance contract made using a means of distance communication (other than telephone) which does not enable the provision of information before the agreement is made, there is no requirement to provide pre-contractual information under the Disclosure Regulations. However, the creditor will need to provide a copy of the agreement in accordance with the Agreements Regulations.
17.14 I
n a case covered by (c), where the borrower requests an immediate overdraft (for example in a bank branch), and (a) and (b) do not apply, the pre-contractual information can be limited to the items specified in regulation 10(8) and can be provided orally.
17.15 R
egulation 11 requires the pre-contractual information to be provided in writing except where an agreement is made over the telephone or where the borrower requests an immediate overdraft. It may be provided by means of the ECCI set out in schedule 3 to the Disclosure Regulations, but this is not mandatory. Regulation 11(2) specifies how the ECCI is to be used. If the ECCI is not used, all information must be equally prominent. There are corresponding changes to the Distance Marketing Regulations48.
17.16 W
here a current account has two or more joint account-holders, and the overdraft is being made by telephone (whether or not at a distance) or with immediate effect, the creditor can comply with the pre-contractual information requirements by disclosing the information only to one account-holder, provided that each account-holder has previously given the creditor their consent to this49.
17.17 S
ection 55 has been amended so that the sanction of unenforceability without a court order where relevant pre-contractual information has not been provided applies to all types of agreement to which the regulations under section 55 apply including overdrafts50.
Copy of draft agreement
17.18 N
ew section 55C requires the creditor, if requested, to provide the borrower with a copy of the prospective agreement without delay, unless at the time the request is made the creditor intends to reject the application. This obligation does not apply to overdrafts secured on land or for credit exceeding £60,260. Breach of section 55C is actionable as a breach of statutory duty.
48 Regulations 85-88 of the EU Directive Regulations
49 Regulation 10(9) of the Disclosure Regulations
50 Regulations 16 and 18 of the EU Directive Regulations 74
Information to be included in the agreement
17.19 T
he Agreements Regulations make provision for the information that must be included in the overdraft agreement. Regulations 5 and 8 apply to non-business overdrafts that are repayable on demand or within three months, including those that are secured on land or for credit exceeding £60,260.
17.20 R
egulation 8(1) provides that the agreement must be in writing and must contain the specified information. However, regulation 8(1)(g) – the TCC together with the assumptions used to calculate it – does not apply to authorised non-business overdrafts secured on land. Where 8(1)(g) applies, the TCC must be calculated using the same assumptions as would be used to calculate an APR – i.e. that the overdraft limit is drawn down in full and repaid within three months (in the case of an open-end agreement).
17.21 T
he information must be clear and concise, and must be easily legible and of a colour which is readily distinguishable from the background medium.
Duty to supply a copy of the executed agreement
17.22 N
ew section 61B51 requires a document containing the terms of the agreement to be given to the borrower. If section 61B is not complied with, the agreement cannot be enforced against the borrower without a court order52. Section 61B also makes provision for when that agreement must be provided:
17.23 F
or authorised non-business overdrafts where the Disclosure Regulations apply (i.e. those that are not secured on land and are not for credit exceeding £60,260):
•
where the creditor has, as required by the Disclosure Regulations, provided the borrower with the full pre-contractual information set out in regulation 10(3), the document can be provided after the agreement is made;
•
where the creditor is permitted by the Disclosure Regulations to provide the more limited information referred to in regulation 10(3)(c), (e), (f), (h) and (k) or 10(5), the document must be provided immediately after the agreement is made (this covers authorised non-business overdrafts that are made by telephone and those that are requested with immediate effect);
•
where the agreement was made at the borrower’s request using a means of distance communication (other than telephone) which does not enable the provision of the PCI before the agreement is
51 Regulation 9 of the EU Directive Regulations
52 Section 61B(3) and regulation 12 of the EU Directive Regulations
75
made, the document must be provided immediately after the agreement is made.
17.24 F
or authorised non-business overdrafts where the Disclosure Regulations do not apply (i.e. those that are secured on land or are for credit exceeding £60,260), there is no requirement to provide pre-contractual information in accordance with those regulations. The creditor must, however, provide a copy of the contract.
17.25 F
or these overdrafts, where the agreement is made at the borrower’s request using a means of distance communication (other than telephone) which does not enable the provision of PCI before the agreement is made, the document must be provided immediately after the agreement is made. In all other cases, the creditor must choose to do one of the following:
•
provide the document before or at the time the agreement is made,
•
provide the information set out in regulation 10(3) of the Disclosure Regulations before the agreement is made and provide the document after the agreement is made, or
•
provide only the information set out in regulation 10(3)(c), (e), (f), (h) and (k), of the Disclosure Regulations before the agreement is made and provide the document immediately after the agreement is made.
17.26 W
here the creditor chooses to do the second or third bullet, the information that is provided before the agreement is made may be provided orally or in writing.
Post-contractual information
17.27 N
ew section 78A requires creditors to give borrowers information on changes to the rate of interest (see chapter 12). It does not apply to overdrafts secured on land. The requirement applies only where the rate increases.
17.28 S
ection 82 is amended so that the requirement to give notice does not apply to a variation in the rate of interest on a secured overdraft, or a variation in non-interest charges for all types of overdraft, unless the rate or charge increases53.
17.29 I
n addition, the schedule to The Consumer Credit (Running-Account Credit Information) Regulations 1983, SI 1983/1570 is amended in respect of authorised non-business overdrafts54. The information provided to the borrower must include the date of the previous statement and the rate of interest and (if the rate changed during the period) when each rate applied.
53 Regulation 28 of the EU Directive Regulations
54 Regulation 63 of the EU Directive Regulations
76

**Amethyst** · 27th August 2010, 14:46:PM

Re: Guidance on the regulations implementing the Consumer Credit Directive AUGUST 201

http://www.legislation.gov.uk/uksi/2...0101969_en.pdf

Also interesting

9. In regulation 21 (current account overdrafts), in the wording inserted as section 74A
(information to be provided on a current account agreement)—
(a) for subsection (1) substitute—
“74A.—(1) This section applies to a current account agreement where—
(a) there is the possibility that the account-holder may be allowed to overdraw on the
current account without a pre-arranged overdraft or exceed a pre-arranged
overdraft limit, and
(b) if the account-holder did so, this would be a regulated consumer credit
agreement.”;
(b) in subsection (3) after “must be informed” insert “in writing”.
10.—(1) Regulation 22 (current account overdrafts) is amended as follows.
(2) For “regulation 19” substitute “regulation 21”.
(3) In the wording inserted as section 74B (information to be provided on significant
overdrawing without prior arrangement), for subsection (1) substitute—
“74B.—(1) Where—
(a) the holder of a current account overdraws on the account without a pre-arranged
overdraft, or exceeds a pre-arranged overdraft limit, for a period exceeding one
month,
(b) the amount of that overdraft or excess is significant throughout that period,
(c) that overdraft or excess is a regulated consumer credit agreement, and
(d) the account-holder has not been informed in writing of the matters mentioned in
subsection (2) within that period,
the account-holder must be informed in writing of those matters without delay.”.
11. In regulation 25 (linked credit agreements), in the wording inserted as section 75A (further
provision for liability of creditor for breaches by supplier), after subsection (7) insert—
“(8) This section does not apply to an agreement secured on land.”.

Guidance on the regulations implementing the Consumer Credit Directive AUGUST 2010

Guidance on the regulations implementing the Consumer Credit Directive AUGUST 2010

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