Thank the Consumer Credit Act for Your Second Charge Loan

Adam Brand Adam Brand | Operations Director

If you are under the age of 40, you likely don't remember an era without the second charge loan. But your parents and grandparents do. Second charge loans were highly irregular borrowing instruments prior to the mid-1970s because they were unregulated. Lenders who were offering the loans would think nothing of taking advantage of consumers with very little concern for consequences. Thank goodness for the Consumer Credit Act of 1974 that brought second charge loans in line with mortgages and unsecured credit, including car loans and credit cards.

The Consumer Credit Act of 1974 was the result of a six-year study that began in 1965 and ended with a report published by the Crowther Committee in 1971. That report painted a very unfavourable picture of existing law, a picture that was so negative that lawmakers recommended scrapping all of the laws on the books and starting over. The existing laws were ambiguous, confusing, and not applied uniformly between commercial and consumer interests, so legislators decided these were not worth trying to save.

Creating a Fair Environment

Today, getting a second charge loan is a pretty straightforward process governed by strict rules and consumer protections. A homeowner contacts the lender to apply for a loan based on available collateral. He or she submits paperwork in the form of an application, which is then reviewed by lender personnel for the purposes of determining acceptance or rejection. If the loan application is accepted, the lender underwrites the loan, and the money is transferred. No other action need be taken as long as the borrower makes all agreed payments on time.

Before the Consumer Credit Act, second charge borrowing was a lot riskier. Lenders would require borrowers to take out exorbitant sums of money at interest rates that were terribly unreasonable. The language in contracts was often ambiguous, making it possible for them to be rendered completely unenforceable should a dispute arise between lender and borrower. And when borrowers could get loans, their properties were at a far greater risk than homeowners experience today.

The point of the Consumer Credit Act was to create a fair environment for both lenders and borrowers. From the lenders perspective, licencing and a strict set of rules served the purposes of ferreting out unscrupulous lenders that would harm the industry's reputation and take advantage of customers. From the borrowersâ?? perspective, the Consumer Credit Act provided a legal framework to ensure they would be treated fairly and equitably in every transaction.

The Consumer Credit Act Is Good Regulation

We tend to bristle at government regulation that is too interfering. Many times it is. But the Consumer Credit Act of 1974 is one case of good regulation that was both necessary and beneficial. Because of what was accomplished by the legislation, the average homeowner can now take out a second charge loan without fear of being taken advantage of.

The availability of affordable second charge loans makes it possible for homeowners to use the equity in their properties to finance everything from home improvements to travel. It's simply a matter of finding a lender with whom the borrower can work to reach his or her financial goals.

Additional legislation has been passed since the Consumer Credit Act to make borrowing and lending more fair across-the-board. But we owe much of what now exists as consumer credit to those leaders who, more than 40 years ago, came to the realisation that the lending and borrowing game was stacked against consumers at every turn. Now it's not. And because it is not, you can take out a second charge loan using the equity in your property.

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