Share
Explore BrainMass

Consumer Credit

Marvellous Motors PLC is a highly successful chain of car dealerships with sites all across the UK. The success of the business is due in no small way to the fact that the company is in the habit of offering customers very competitive finance deals when they purchase their cars. Marvellous Motors PLC is able to provide cheaper consumer credit mainly because it has an arrangement with Alba Bank whereby the Bank provides finance to dealership customers. Dealership staff process customer applications for credit and pass this information to the Bank which then simply approves the decision to lend the customer credit. The Bank benefits from this arrangement because all credit agreements are signed by the customers on dealership premises meaning that the Bank can keep down costs by getting another business to do most of the work when it comes to processing new credit applications. Thanks to its business connection with the Bank, Marvellous Motors PLC has seen sales treble in the last 18 months. Most of the customers are able to purchase a new or used car on either a credit sale or hire purchase basis. Before, Marvellous Motors PLC entered into its relationship with Alba Bank, it was common practice for the manager of a dealership to give well established customers the opportunity to buy cars on credit. This practice had to end suddenly, however, when it was pointed out to the Board of Directors by the dealership's lawyers that it did not have a consumer credit license. Thankfully, the dealership applied for and was granted a license before anyone got into serious trouble.

1. What Act of Parliament covers consumer credit and how would you define a consumer credit agreement?
2. By reference to Section 75 of the Consumer Credit Act 1974, describe the legal relationship between Marvellous Motors PLC and Alba Bank.
3. What is the difference between a credit sale and a hire purchase agreement?
4. In what circumstances do debtors have the right to cancel a consumer credit agreement?
5. What is the purpose of consumer credit licenses and will a business which applies for a license automatically be granted one?
a) Differentiate between types of credit agreements.
b) Apply rates, termination rights and default notices in a given scenario.

Solution Preview

Consumer Credit
Consumer credit is a highly regulated business that is governed by the Consumer Credit Act passed in Parliament in 1974. This act requires lenders to obtain a license to issue credit, and requires the lender to clearly and fully disclose all of the terms that govern any loan (Consumer credit act 1974, 2010). Specifically, This agreement is a broad reaching agreement that outlines fair trade, outlines penalties, and defines the overall agreement.
Define Consumer Credit Agreement and the Differences Between Agreements
A consumer credit agreement, as defined by the act is, "an agreement between an individual ('the debtor') and any other person ('the creditor') by which the creditor provides the debtor with credit of any amount" (Consumer credit act 1974, 2013). The consumer credit agreement can further be defined within the framework of three basic agreements that creditors and lenders may enter into. These agreements are regulated consumer credit agreements, partially regulated agreements, and regular consumer hire agreements.
Regulated Consumer Credit Agreements
First, regulated consumer credit agreements are agreements that do not exceed £5,000, but as amended in the Consumer Credit Act of 2006 this amount has increased to £ 25,000 (Regulated agreements, 2010). Within the definition of an individual this type of agreement can be entered into as the result of a partnership that may include tow or the persons (Regulated agreements, 2010). Further, regulated credit agreements can be exempt if the creditor is a charity, or land developer, and certain other entities considered exempt under this law (Regulated agreements, 2010).
Consumer Hire Agreements
Consumer hire agreements are closely related to regulated consumer agreements, and are largely used to regulate rented rather than purchased items. For example, if a person wanted to rent a truck to move furniture for a period of ...

Solution Summary

This 1164 word solution includes 7 references to tie its concepts together. The solution outlines a fictitious car dealer called Marvellous Motors PLC, and the lending institution they use to finance their cars Alba Bank. The solution explains the Consumer Credit Act of 1974, and many of its sections. It defines what consumer credit is, and lists the most common types of credit contracts.

$2.19