Customer protection

Businesses that offer or arrange credit, including credit for the supply of goods or services, are generally subject to the Consumer Credit Act. This Act provides a number of important protections for consumers and sole traders and partnerships of two or three partners.

Consumer credit rules

You must be authorised by the Financial Conduct Authority (FCA) to offer credit to consumers.

However you do not need to be authorised if you offer credit to another business unless your customer is:

• a sole trader
• a partnership with fewer than four partners
• an unincorporated association

If you offer credit to these customers, you’ll probably need to be authorised.

If you advertise credit, you must ensure advertisements containing the cost of credit also include a representative example including certain information such as the annual percentage rate.

Before granting or increasing any credit limit, you must carry out a credit check using information provided by the consumer or from a credit reference agency. Consumers have the right to withdraw from any credit agreement or increased credit limit within 14 days of concluding the credit agreement, or - if later - once they receive a copy of the agreement or notification of a credit limit. Consumers also have the right to settle a credit agreement early.

You must provide certain information about the credit agreement before a consumer enters into the agreement. The information must usually be provided in a standard pre-contract credit information form. The borrower must be able to take the information away and be allowed to ask questions or for further information if they require it.

You must also provide regular statements during the lifetime of the credit agreement - including a breakdown of the balance, clearly stating interest payments and default charges. Failure to do so means you cannot enforce the agreement and cannot charge interest for the period you were in non-compliance.

In addition to these rights, consumers can also make claims against both the supplier and the credit provider for faulty goods costing between £100 and £30,000.

If you provide hire-purchase agreements, then you - rather than your supplier - are responsible for the quality of goods. And consumers have the entire length of the hire-purchase agreement in which to reject faulty goods.

For more information on the duties of businesses offering credit, see consumer credit.

Additionally, consumers have a number of rights when they purchase financial products and services.