Legal Article - Business Law

Extortionate Credit

Brief mention should be made of the special powers under the Consumer Credit Act in regard to credit, which is considered extortionate. The rate of interest set by a credit provider will take into account the risk and financial commitment involved.

There is no magic formula for setting such a rate and the temptation by unscrupulous lenders is to charge extortionate rates.

There are provisions in the Act for a customer to take their agreement to the County Court and have a review of the terms of the agreement to consider if they are extortionate.

If the Court feels the terms are extortionate then it can order the agreement be amended eg to repay excessive interest charges or order payment over a longer period.

The factors that the Court will consider are:

 The customers age, experience, business capacity and state of health
 The extent and nature of financial pressure on the customer
 The risk to the dealer
 The relationship between the customer and lender
 Whether the price was inflated for credit arrangements
 The current interest rates in the marker place
 Whether additional transactions with the credit deal favour the customer or lender e.g. a warranty

Unless motor traders get involved with providing credit themselves then it is unlikely that this area will ever cause problems.

Published: 16 Mar 2011

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