Credit Score Basics > What is the Consumer Credit Act?

What is the Consumer Credit Act?

Wollit Team1 minute read · Updated 2nd July 2024

The Consumer Credit Act is an essential law covering most kinds of lending in the UK.

It has rules for things like:

How banks and other financial firms can lend;
How they can collect money;
What are your rights when you borrow.

The Consumer Credit Act was first published in 1974 and amended in 2006, so you might find it online either as the Consumer Credit Act 1974 or the Consumer Credit Act 2006.

What debts does the Consumer Credit Act cover?

Any debt covered by the Consumer Credit Act is called a regulated debt.

Some examples include:

Credit cards;
Gift cards;
Store finance and pay later schemes;
Payday loans;
Personal loans;
And more.

Examples of debt that's not regulated by the Consumer Credit Act include:

Mortgages;
Loans to family or friends;
Debts to loan sharks or any unlicensed lender;
Household bills like gas, electricity, water, and internet;
Debts to the local or central Government;
Council tax and other taxes;
And more.

Why should I care about the Consumer Credit Act?

Simply put, you have more rights if a debt is regulated by it.

Here are some examples of the rights that the Consumer Credit Act gives you:

You have the right to a 14-day cooling-off period. What this means is that if you change your mind after getting a loan, insurance, or credit card, you have 14 days to cancel and get your money back.
You have the right to "voluntary termination”. If you want to cancel after the 14-day cooling-off period, you can still do it – as long as you have repaid at least 50% of the amount owed.
You have the right to pay your loan early, in which case the Consumer Credit Act says you do not have to pay the total amount of interest written in the contract.
You must be sent arrears letters and a default notice if you fall behind on payments.
You must be given time to bring your account up to date before being taken to court.
All regulated creditors must have a licence, and it is illegal to trade without one.
You must be given regular statements by your creditors.
You're also protected by the Financial Ombudsman Service. If you complain to a creditor but are unhappy with the result, the Ombudsman can investigate it.

And when it comes to your credit score, all of these rights matter. They give you more time to settle your debts and more ways in which you can reduce the impact of negative effects like CCJs or defaults.