CONC 4.2 Pre-contract disclosure and adequate explanations

This section, unless otherwise stated in or in relation to a rule:

1. (1)

   applies to a firm with respect to consumer credit lending;

2. (2)

   applies to a firm with respect to credit broking where the firm has or takes on responsibility for providing the disclosures and explanations to customers required by this section;

3. (3)

   does not apply to an agreement under which the lender provides the customer with credit which exceeds £60,260, unless the agreement is a residential renovation agreement5;

4. (4)

   does not apply to an agreement secured on land; and

5. (5)

   does not apply to a borrower-lender agreement enabling the customer to overdraw on a current account other than such an agreement which would be an authorised non-business overdraft agreement, but for the fact that the credit is not repayable on demand or within three months.

   [Note: section 74(1D) of CCA]

1. (1)

   Before making a regulated credit agreement the firm must:

   1. (a)

      provide the customer with an adequate explanation of the matters referred to in (2) in order to place the customer in a position to assess whether the agreement is adapted to the customer's needs and financial situation;

   2. (b)

      advise the customer:

      1. (i)

         to consider the information which is required to be disclosed under section 55 of the CCA; and

      2. (ii)

         where the information is disclosed in person, that the customer is able to take it away;

   3. (c)

      provide the customer with an opportunity to ask questions about the agreement; and

   4. (d)

      advise the customer how to ask the firm for further information and explanation.

      [Note: section 55A(1) of CCA]

2. (2)

   The matters referred to in (1)(a) are:

   1. (a)

      the features of the agreement which may make the credit to be provided under the agreement unsuitable for particular types of use;

   2. (b)

      how much the customer will have to pay periodically and, where the amount can be determined, in total under the agreement;

   3. (c)

      the features of the agreement which may operate in a manner which would have a significant adverse effect on the customer in a way which the customer is unlikely to foresee;

   4. (d)

      the principal consequences for the customer arising from a failure to make payments under the agreement at the times required by the agreement including, where applicable and depending upon the type and amount of credit and the circumstances of the customer:

      1. (i)

         the total cost of the debt growing;

      2. (ii)

         incurring any default charges or interest for late or missed payment or under-payment;

      3. (iii)

         impaired credit rating and its effect on future access to or cost of credit;

      4. (iv)

         legal proceedings, including reference to charging orders (or, in Scotland, inhibitions), and to the associated costs of such proceedings;

      5. (v)

         repossession of the customer's home or other property; and

      6. (vi)

         where an article is taken in pawn, that the article might be sold, if not redeemed; and

   5. (e)

      the effect of the exercise of any right to withdraw from the agreement and how and when this right may be exercised.

      [Note: section 55A(2) of CCA and paragraph 3.13 of ILG]

3. (3)

   The adequate explanation and advice in (1) may be given orally or in writing, except where (4) or (4A)7 applies.

   [Note: section 55A(3) of CCA]

4. (4)

   Where the matters in (2)(a), (b) or (e) are given orally or to the customer in person, the explanation of the matters in (2)(c) and (d) and the advice required in (1)(b) must be given orally to the customer.

   [Note: section 55A(4) of CCA]

5. (4A)

   The explanation of the matters in CONC 4.2.15R(3A) must be given to the customer both orally and in a durable medium.7

6. (5)

   Paragraphs (1) to (4A7) do not apply to a lender if a credit broker has complied with those sub-paragraphs in respect of the agreement.

   [Note: section 55A(5) of CCA]

7. (6)

   Where the regulated credit agreement is an agreement under which a person4 takes an article in pawn:

   1. (a)

      the requirement in (1)(a) only relates to the matters in (2)(d) and (e); and

   2. (b)

      the requirements in (1)(b) and (d) do not apply.

      [Note: section 55A(7) of CCA]

8. (7)

   This rule does not apply to:

   1. (a)

      a non-commercial agreement;

   2. (b)

      a small borrower-lender-supplier agreement for restricted-use credit

      [Note: section 74(1) of CCA]

9. (8)

   [deleted]6

10. (9)

    [deleted]6

[Note: article 5(6) of the Consumer Credit Directive]

Where the regulated credit agreement is high-cost short-term credit, the lender or a credit broker must explain under CONC 4.2.5R (1)(a) that entering into that agreement would be unsuitable to support sustained borrowing over long periods and would be expensive as a means of longer term borrowing.

[Note: paragraph 3.13 (box) of ILG]

Even where a customer states or implies that there is no need for an explanation of the regulated credit agreement, the lender or credit broker must continue to comply with CONC 4.2.5 R.

[Note: paragraph 3.10 of ILG]

A lender or a credit broker must not encourage or induce a customer to waive the rights in CONC 4.2.5 R.

[Note: paragraph 3.10 of ILG]

Before a lender concludes that CONC 4.2.5R (1) to CONC 4.2.5R(4A)7 do not apply to it in relation to a regulated credit agreement by virtue of CONC 4.2.5R (5), the lender must take reasonable steps to satisfy itself that an explanation of that agreement complying with CONC 4.2.5 R has been provided to the customer by the credit broker.

[Note: paragraph 3.11 (box) of ILG]

The lender or the credit broker must enable a customer to request and obtain further information and explanation about a regulated credit agreement without incurring undue cost or delay.

[Note: paragraph 3.16 (box) of ILG]

Neither a lender nor a credit broker may require a customer to acknowledge that the information and explanations it has provided are adequate to satisfy the requirements of CONC 4.2.5 R.

[Note: paragraph 3.30 (box) of ILG]

The following information must be provided by the lender or a credit broker as part of, and in addition to that provided under, the adequate explanation required by CONC 4.2.5 R, where applicable, in the specified cases:

1. (1)

   for credit token agreements:

   1. (a)

      different rates of interest and different charges apply to different elements of the credit provided (for example, a higher cost of withdrawing cash);

   2. (b)

      the implications of only making minimum repayments;

   3. (c)

      interest rates or charges2 may be increased;

   4. (d)

      where applicable, the interest rates may be increased based on the risks presented by the individual customer;

   5. (e)

      except in relation to retail revolving credit8 and BNPL agreements,7 the limitations on any zero percentage or low interest or other introductory offer; and

   6. (f)

      conditions on any balance transfers, including any fees and charges which may apply;

2. (2)

   for credit card cheques, the higher associated costs relative to payment by credit card;

3. (3)

   for home credit loan agreements and high-cost short-term credit, the effect of refinancing (within the meaning in CONC 6.7.17 R) or otherwise extending the duration of the credit or of the credit agreement;

4. (3A)

   for a home credit loan agreement that would refinance an existing home credit loan agreement and also involve an increase in the amount of principal outstanding, and where an alternative option could be entering into a separate home credit loan agreement with the lender for the amount of the additional principal, the information must include an explanation of the difference, if any, between the weekly amount payable and the total amount repayable for a refinanced loan as compared to the situation where the borrower enters into a separate, concurrent loan. If the regular period after which the next payment is due is not weekly but a different period, then the lender must refer to that other period.7

5. (4)

   for bill of sale loan agreements:

   1. (a)

      the risk of losing the asset which is the subject of the bill of sale and the loss this could entail;

   2. (b)

      that repossession can take place without a court order;

   3. (c)

      that repossession may not clear the debt owed; and

   4. (d)

      unlike in the case of hire-purchase agreements and conditional sale agreements, the customer is not protected under this arrangement from repossession of the asset where one third or more of the total amount payable has been paid off;

6. (5)

   for hire purchase agreements and conditional sale agreements:

   1. (a)

      the customer does not own the goods until the sums required under the agreements have been paid, including any option to purchase fee and any other conditions have been satisfied;

   2. (b)

      goods can be repossessed without a court order in the event of default, unless in relation to a regulated credit agreement the customer has paid a third or more of the total amount payable;

7. (6)

   for a credit agreement which is used to consolidate existing debts of the customer (whether to the same lender or to another person) and where applicable in each case:

   1. (a)

      the effect of consolidating the debts will involve payment of a higher rate of interest or charges or both (if the relevant information about existing debts is known to the lender or credit broker);

   2. (b)

      the effect of consolidating the debts will involve increasing the period required for repayment (if the relevant information about existing debts is known to the lender or credit broker); and

   3. (c)

      the credit agreement would be secured on the customer's property;

8. (7)

   for a credit agreement which includes a condition requiring a guarantor, the requirement for the customer to provide security in the form of a guarantee.

9. (8)

   for retail revolving credit8 and BNPL agreements, the limitations that apply to any zero percentage or low interest, introductory or other promotional offer, including the circumstances in which interest or charges could become payable and how these would be calculated if those circumstances arose, including the date from which interest or charges would accrue, the rate of that interest or those charges and the amount of principal on which the interest would be charged. If, for example, failing to meet the conditions for the application of the offer would result in interest being charged at a higher rate, or from the date of the purchase of the goods or services or on the total purchase price of the goods or services without account being taken of repayments made during the offer period, this must be included in the adequate explanation.7

[Note: paragraph 4.26c of CBG]

[Note: paragraph 3.13 of ILG]

1. (1)

   4This rule applies if:

   1. (a)

      a firm is to enter into a regulated credit agreement; and

   2. (b)

      an individual other than the borrower (in this rule referred to as “the guarantor”) is to provide a guarantee or an indemnity (or both) in relation to the regulated credit agreement.

2. (2)

   The firm must, before making the regulated credit agreement, provide the guarantor with an adequate explanation of the matters in (3) in order to place the guarantor in a position to make an informed decision as to whether to act as the guarantor in relation to the regulated credit agreement.

3. (3)

   The matters are:

   1. (a)

      the circumstances in which the guarantee or the indemnity (or both) might be called on; and

   2. (b)

      the implications for the guarantor of the guarantee or the indemnity (or both) being called on.

4. (4)

   For the purposes of (2), the rules and guidance listed in (5) apply as if:

   1. (a)

      references to the customer were references to the guarantor; and

   2. (b)

      references to CONC 4.2.5R were references to this rule.

5. (5)

   The rules and guidance are:

   1. (a)

      CONC 4.2.6G to CONC 4.2.7AG;

   2. (b)

      CONC 4.2.9R and CONC 4.2.10R;

   3. (c)

      CONC 4.2.12R to CONC 4.2.14G; and

   4. (d)

      CONC 4.2.16G to CONC 4.2.21G.

6. (6)

   For the purposes of this rule, a guarantee does not include a legal or equitable mortgage or a pledge.

1. (1)

   4CONC 4.2.22R does not apply to a lender if a credit broker, a solicitor, a barrister, (in Scotland) an advocate, or a relevant person has complied with that rule in respect of the agreement.

2. (2)

   Before a lender concludes that CONC 4.2.22R does not apply to it in relation to a regulated credit agreement by virtue of (1), the lender must take reasonable steps to satisfy itself that:

   1. (a)

      an explanation complying with CONC 4.2.22R(2) has been provided to the guarantor; and

   2. (b)

      the following had been provided to the person giving the explanation, before the explanation was given:

      1. (i)

         a copy of the agreement;

      2. (ii)

         if the guarantee or the indemnity (or both) is contained in a document other than the agreement, a copy of that document; and

      3. (iii)

         a copy of any other document or information in writing relating to the agreement which had been provided to the guarantor by the lender or the credit broker.

3. (3)

   In this rule, “relevant person” means a person who, for the purposes of the Legal Services Act 2007, is an authorised person in relation to an activity which constitutes the exercise of a right of audience or the conduct of litigation (within the meaning of that Act), and is not a solicitor, a barrister or (in Scotland) an advocate.