Consumers are able to choose to terminate finance agreements at any point if the agreement is regulated under the Consumer Credit Act 1974 (as amended in 2006). The term is often abbreviated to ‘VT’.
The VT provisions were originally introduced to protect vulnerable consumers from financial hardship.
Changes introduced in April 2008 removed the old £25,000 financial protection limit, so that the vast majority of consumer credit agreements are now regulated under the Act, further increasing industry losses and potentially increasing the cost of credit for consumers.
FLA statistics show that the number of VT cases recorded by FLA members in 2011 amounted to losses of more than £50 million.
The FLA’s view
The FLA supports consumer protection, especially for the most vulnerable members of society. Nevertheless, we have called for Government action to mitigate the disproportionate cost that VTs represent to finance providers, as the majority of customers using VT provisions are not in financial difficulty.
We have recently responded to questions posed at the Government's Consumer Credit Regulation Stakeholder Forum, which ask what threats and opportunities are available if the consumer credit system is reformed. We have suggested VTs, specifically sections 99 and 100 of the Consumer Credit Act that govern them, have been superseded by changes to the CCA and the introduction of the Consumer Credit Directive in 2011. The Right of Withdrawal and Right of Early Settlement in the CCD replace VTs and we hope to get recognition of this as the process to reform consumer credit continues.
We will continue discussions with Ministers and officials regarding VTs.