Introduction

2â Evolution of the consumer credit market

Access to consumer credit, which ‘less than a century ago barely existed’ has dramatically altered.4 Consumers are able to access credit over the World Wide Web, their interactive television sets, through telephone banking and retail outlets. This development is summarised by the National Association of Citizens Advice Bureau (NACAB):

In 1979 bank customers wanting to arrange a loan had to ensure that they were able to visit their branch office on a weekday between 9.30 a.m. and 3.30 p.m. Today the proliferation of telephone and Internet banking provides 24-hour access 365 days a year. An ever increasing number of companies have entered the personal finance market offering an ever more bewildering choice of products.5

The increased use of credit initially had a positive impact for consumers, a view initially held by the Crowther Committee, who concluded that ‘on balance consumer credit is beneficial, since it makes a useful contribution to the living standards and social wellbeing of the majority of the British people’.6 Similarly, Borrie commented on the benefits afforded by access to credit:

as inflation began to rise in the 1970s, it made no sense to wait before buying: the price would inevitably be higher if you did so. Two-digit inflation was a great boost to buying on credit, and buying a house on credit made the greatest sense of all because inflation ensured that the capital value of your house increased while your repayments took a gradually smaller percentage of your income. So the enormous expansion of credit in the 1960s and 1970s met a very real demand by the public which was expressed not in the ballot box but in the shops and in the bank manager’s parlour.7

3 National Consumer Council, Affordable Credit: a Model that Recognises Real Needs (National Consumer Council, London, 2005) 1.

4 M. Richards, P. Palmer and M. Bogdanova, ‘Irresponsible lending? A case study of a UK credit industry reform initiative’ (2008) 81(3) Journal of Business Ethics 499, 501.

5 National Association of Citizens Advice Bureau, Daylight Robbery: The CAB Case for Effective Regulation of Extortionate Credit (London, 2000).

6 Crowther Committee on Consumer Credit, as cited in C. Ironfield-Smith, K. Keasey, B. Summers, D. Duxbury and R. Hudson, ‘Consumer debt in the UK: attitudes and implications’ (2005) 13(2) Journal of Financial Regulation and Compliance 132,134.

7 G. Borrie, ‘The credit society: its benefits and burdens’ (1986) Journal of Business Law (May) 181, 184.

Furthermore, Scott and Black argued that:

from the customer’s viewpoint buying on credit has its advantages. It may simply be convenient either at the point of sale or in enabling payment to be made for something over a period. With major purchases consumers can obtain the present employment of products, services and property without the need for immediate payment; there is a good argument that the use of credit in this way is a desirable forms of forced saving for some people.8

The consumer credit market has undergone a revolution since the 1970s when the government’s legislative control over the sector was extremely restrictive.9 Indeed, prior to the publication of the Crowther Committee Report and the introduction of the Consumer Credit Act (CCA) 1974, the consumer credit legislative framework consisted of the restrictive and unsuitable Pawnbrokers Acts 1872–1960,10 the Moneylenders Acts 1900–1927 and the Hire-Purchase Act 1965.11 The Griffiths Commission stated that ‘there were strict quantitative limits imposed on the banks by the government. Building societies supplied mortgages for house purchases, but again these were rationed on the basis of rigid and conservative debt to income ratios’.12

The 1980s and 1990s saw the deregulation of the restrictive consumer credit legislation.13 Such measures included the abolition of controls on transactions in foreign exchange in 1979, the restrictions on banking lending being lifted, the removal of the reverse asset ratio in 1981 and the abolition of hire purchase controls in 1982.14 Keasey et al. noted that this deregulation ‘transformed borrowing into an acceptable, and necessary, part of many consumers’ lives … making buying on credit more attractive when compared with saving for consumer goods’.15 Other important measures included the move to allow banks to offer mortgages;16 the Building Societies Act 1986 liberalised the interest rate fixing agreements; the demutualisation of building societies occurred and

8C. Scott and J. Black, Cranston’s Consumers and the Law (Butterworths, London, 2000) 231. The Griffiths Commission stated that the ‘credit markets have grown to their present size because the services they have provided have responded to consumer demands. The result has been that consumers have been able to enjoy a higher standard of living than would have been the case if these markets had not existed’. The Griffiths Commission on Personal Debt: What Price Credit?

(Centre for Social Justice, London, 2005) 1.

9Richards et al., above n.4.

10For a more detailed discussion of this legislative framework J. Macleod, ‘Pawnbroking: a regulatory issue’ (2005) Journal of Business Law (March) 155.

11S. Brown, ‘The Consumer Credit Act 2006: real additional mortgagor protection?’ (2007)

Conveyancer and Property Lawyer (July/August) 316, 317.

12Griffiths Commission, above n. 8, at 21.

13E. Fernandez-Corugedo and J. Muellbauer, Consumer Credit Conditions in the United Kingdom,

Bank of England Working Paper No. 314 (London, 2006) 4.

14NACAB, above n. 5, at 6.

15See Ironfield-Smith et al., above n. 6, at 134.

16During this period mortgage borrowing increased by 300 per cent, largely due to the introduction of ‘right to buy’ legislation under the Housing Act 1980. See E. Kempson, Overindebtedness in Britain: A Report to the Department of Trade and Industry (Personal Finance Research Centre, Bristol, 2002).