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The rules applying to consumer credit don’t just apply to banks, credit card companies and other specialist credit businesses, and deciding whether a licence is needed under the Consumer Credit Act 1974 (CCA) is not always clear cut as a recent case between The Office of Fair Trading and Ashbourne Management Services Limited (Ashbourne) highlighted.
Ashbourne drew up membership contracts for over 700 gym clubs and then collected members’ payments. The contracts contained minimum membership periods of between one and three years and routinely stated that members could not cancel their memberships. The court decided that 10 out of the 13 contracts it examined were unfair but they did not amount to credit agreements. This was because the consumer only had to pay for gym membership each month. If the consumer had been obliged to pay the fees for the whole minimum period at the outset but pay it off monthly, the result may have been different.
However, the decision does not preclude the possibility of other membership contracts or other payment arrangements falling foul of the CCA. Whether or not a consumer credit licence is required will depend on whether credit is being offered or not and this will depend on the wording of the agreement in place.
It is therefore important to determine correctly whether your business requires a consumer credit licence or not. If your business requires a consumer credit licence and you trade without one, you are committing a criminal offence that could result in a fine or a prison sentence or both.
It is important to bear in mind that even if you make no charge for your services or you are non-profit-making, you may still need a licence.