The Consumer Protection Act (the “Act”) commenced on 14th of March, 2013.
The Act generally provides for the protection of consumers of certain goods and services and prevention of unfair trade practices in consumer transactions. While we shall send a more detailed analysis of the Act, we wish to point out the following key provisions that banks and other financial institutions should take note of.
1. Credit Agreement
A credit agreement is one of the transactions in which the provisions of the Act apply.
The Act defines a credit agreement as “…a consumer agreement under which a lender extends credit or lends money to a borrower and includes a supplier credit agreement and a prospective consumer agreement under which an extension of credit, loan of money or supplier credit agreement may occur in the future, but does not include an agreement under which a lender extends credit or lends money on the security of a mortgage of real property or consumer agreements of a prescribed type.” (emphasis ours)
The Act does not define ‘real property’ nor does it provide information on what ‘consumer agreements of a prescribed type’ refer to. Halsbury’s Laws of England defines Real Property to denote land and things attached to land so as to become part of it, as well as rights in the land that endure for life. In our opinion, the Act does not apply to agreements (such as facility letters or loan agreements) under which lenders extend facilities secured by charges over property, since such agreements are expressly excluded from the definition of credit agreement.
2. Credit Cards
In cases where a consumer applies for a credit card but does not sign an application form, or where the consumer receives a credit card from the issuer without applying for it, the consumer shall be deemed to have entered into a credit agreement on first using the card.
Consequently, such a consumer is not liable to pay the issuer any amount in respect of the credit card received in the manner described above until the consumer uses the card.
A consumer is free, where required under a credit agreement to buy certain insurance, to buy such insurance from any insurer who may lawfully provide that type of insurance. However, the lender may reserve the right to disapprove, on reasonable grounds, an insurer selected by the borrower.
Further, where a lender offers to provide or arrange for insurance required under a credit agreement, the lender must disclose to the borrower, in writing, that the borrower is free to choose any other insurer who can lawfully provide the insurance.
4. Default Charges
The Act defines “Default Charge” as a charge imposed on a borrower who does not make a payment as it comes due under a credit agreement or who does not comply with any other obligations under the credit agreement but does not include interest on an overdue payment.
A lender is not entitled to impose on a borrower under a credit agreement default charges other than those set out in the Act. These include legal costs incurred by the lender in collecting the payment required, costs (including legal costs) incurred in realization and protection of the security as well as costs incurred by the lender due to any instrument or cheque issued by the borrower being dishonoured.
It is important to note that this provision does not affect agreements which are excluded from the Act as set out in paragraph 1) above.
5. Prepayment Charges
A borrower is entitled to pay the full outstanding balance under a credit agreement at any time without any prepayment charge or penalty.
6. Disclosure Statements
6.1 Initial Disclosure Statements
Lenders are required to deliver an initial disclosure statement for a credit agreement to the borrower before the borrower enters into the agreement. The disclosure statement should disclose the prescribed information. However, the Act does not provide details of what the ‘prescribed information’ is.
6.2 Subsequent disclosure on fixed credit
For credit agreements for a fixed credit where the interest rate is a floating rate, the lender is required, at least once every 12 months, to give the borrower a disclosure statement for the period covered by the statement disclosing the prescribed information. The Act does not provide details of what the “prescribed information” is.
Where the interest rate is not a floating rate but the credit agreement allows the lender to change the interest rate, the lender is required to inform the borrower within thirty (30) days of the increment of the annual interest rate to a rate that is at least 1 per cent higher than the rate most recently disclosed.
6.3 Subsequent disclosure on open credit
The lender under an agreement for open credit is required to deliver a statement of account to the borrower at least once a month after entering into the agreement.
Open credit is defined in the Act as ‘credit or a loan of money under a credit agreement that:
- anticipates multiple advances to be made as requested by the borrower in accordance with the agreement; or
- does not define the total amount to be advanced to the borrower under the agreement although it may impose a credit limit’.
The lender is however not required to give the borrower such a statement if the borrower has not received any advances and made no payments and:
- where the balance payable by the borrower is zero; or
- where the borrower is in default and the lender has cancelled the borrower’s right to obtain advances under the agreement and has demanded payment of the outstanding balance.