Consumer credit may be most simply described as credit that is made available to the general consumer. This credit may be in various forms and it may be offered by various lenders. Another way of describing consumer credit is ‘lending to individuals’. The reason for this is that borrowers in consumer credit tend to be individuals and families rather than companies or other organisations.
Types of Consumer Credit
There are a number of types of consumer credit. The most commonly accessed are credit cards, loans, mortgages and overdrafts. Depending on the reason for which the consumer wishes to obtain credit, any of these may be more appropriate. For instance, if the borrower wishes to buy a house, then a mortgage would be the type to choose. If, however, the borrower wished to borrow money to purchase goods in shops and online, which he or she would pay back in a short period of time, then a consumer credit agreement involving a credit card would be more appropriate.
Types of Lender
With the consumer credit market expanding in the last couple of decades, a variety of lenders now exist to service those wishing to borrow money. In addition to the more traditional types – such as banks, building societies and pawnbrokers – the recent difficulties in the global credit market have led to other types of lender are becoming more common, for instance credit unions, peer to peer lenders, payday loan companies and doorstep lenders.
Regulation of Consumer Credit
Given that the vast majority of consumers require access to credit at some point during their lives, effective regulation of the consumer credit market is essential. In the United Kingdom, the market is regulated by two Acts of Parliament: the Consumer Credit Act 1974 and the Consumer Credit Act 2006. In general these Acts increased protection for borrowers entering into credit agreements with lenders; the 2006 Act in particular gave consumers more power to challenge credit agreements perceived as unfair, and enhanced the powers of the Office of Fair Trading, the UK government department responsible for regulating credit agreements. The OFT has the power to withdraw or suspend a lender’s consumer credit license – in effect stopping the lender from being able to offer credit – if it finds grounds for doing so after an investigation.
Consumer Credit Advice
A wide range of advice is available for consumers wishing to obtain credit, or for those consumers that have already taken out credit but require existence in managing repayments.
In the United Kingdom, free debt advice is available from a number of bodies. The Citizens’ Advice Bureau has offices in most locales, and offers advice on credit and debt management to local residents. If approaching the CAB, it is worth checking which office local as many offices are unable to help consumers from outside the boundaries they cover.
Consumer Credit Counselling Service
In the United States, a Consumer Credit Counselling Service is a non-profit organisation that exists to give free advice on debt and how to manage it. Like the Citizen’s Advice Bureau in the United Kingdom, it is both national and local in that it is organised and regulated at a national level, while each branch exists to serve a particular locale. Because of this, individual Consumer Credit Counselling Services are often proficient at providing local solutions to debt problems.