Section 56 Criticisms:

Section 56 relates toantecedent negotiations, that is, any discussions or communications between the creditor (or owner) and the debtor or hirer before entering into a regulated agreement which can involve credit brokers or suppliers concerning goods or transactions.[1]

While the section aims to protect consumers, its limitations and practical implications are said to have inspired unyielding debates, particularly among credit agencies. Section 56 is criticised since it affects antecedent negotiations. It is contended, however, that the criticisms mainly encompass its complexity and potential legal consequences. Some maintain that it lacks clarity which leads to issues and uncertainty in a practical application, for instance, the provision specifies that an agreement is void where it purports to treat one acting as a negotiator as the agent of the debtor or hirer; if it relieves a person (owner or lender of goods) from liability for acts or omissions of anyone conducting negotiations with the debtor or hirer.[2]

Moreover, it is thought that the credit industry criticizes the section mainly because it restricts how negotiations are conducted as well as the terms of negotiated contracts. Some argue that it creates complications and will likely discourage effective credit transactions.

Even though section 56 aims to protect consumers by ensuring transparency and fairness during negotiations, opponents claim that its application can be contentious in practice.

It may further be argued that over time, concepts and distinctions within the provision have become uncertain or blurred. Proposed reforms are said to seek to provide clarity, for example, to terms like "enforceable" and "enforcement."

It is believed that the scope of the Act may need adjustments and extensions to apply to companies, limited liability partnerships, or loans above 25,000 for business purposes. It is argued that the reforms should address these limitations, ensuring that smaller loans remain available for consumers. In addition, the FCA's[3] Consumer Duty changes the context in which CCA protections operate, and authorized firms may be liable for the activities of unregistered firms.[4]

Do you agree with the proposed reforms?

Footnotes:

[1] The term "negotiator" refers to the person conducting negotiations with the debtor or hirer.

[2] Generally, it avoids efforts to shift liability unfairly or misrepresent the role of negotiators.

[3] Financial Conduct Authority - This is a financial regulatory body within the United Kingdom which operates independently of the UK Government and is financed by charging fees to members of the financial services.

[4] The government also plans to regulate many Buy-Now Pay-Later (BNPL) products that currently benefit from a specific exemption in the Regulated Activities Order (RAO).

References:

[1] Section 56, Consumer Credit Act 1974

[2] The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2013

[3] Financial Conduct Authority

[4] Stoke, R, 'Commercial Law,' 10th ed., Sweet and Maxwell (2022)

Respond to the above using OSCOLA references. Give References for the response. You may address aspects which include the following:

• Consider the application of section 75.
• Consider the position prior to the establishment of the Act.
• Consider the reason for establishing the CCA and aspects relating to creditor's liability which have proved difficult to interpret.
• Assess the different cases on creditor's liability and how they have influenced the development of the statute.
• Consider whether the law offers protection for debtors and how the law balances the interest of creditors.