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New
Legislation
Changes in the UK's
Consumer Credit law means that franchisors which
extend credit and/or hire out goods or equipment
to franchisees will have to comply with complex
regulations.
The Consumer Credit Act 2006
(CCA 2006) contains important changes to UK
consumer credit law, which will come into force in
October 2006. These changes have the potential to
affect how franchisors and franchisees conduct
their businesses.
Impact on
Franchising
| 1.
| Every franchise business that
provides credit e.g. deferring initial and/or
ongoing franchise fees or which hires out
products or equipment to its franchisees must
review its procedures and documentation to
ensure that they continue to comply with the CCA
requirements. |
| 2.
| All franchisors should review
or insist their franchisee's review the
franchisee's activities to ensure CCA
Compliance. |
The
key changes are many and complex. The main impact
upon franchisors is that:
- previously credit above £25,000
was subject to regulation. This exemption has
been abolished (unless it is for business
purposes)
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- the courts will have a wide
discretion to re-write credit agreements that
are "unfair" to franchisees or their customers
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- Under the new rules the CCA
applies to two or three person partnerships
also
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- there will be a greater
administrative burden - franchisors and
franchisees must send out annual statements for
all "fixed sum" credit - this includes hire
purchase and conditional sale
agreements
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- there are new forms of notices
which must be sent out to debtors or hirers in
situations of default or
arrears.
| If
the franchise falls within the scope of the
CCA:
- the franchise and other
agreements will need to comply with the complex
form prescribed by the new law and must be
executed in accordance with its very specific
requirements; and
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- if not already licensed, the
franchise business will need to obtain a
consumer credit
licence.
| If
you require any further information, please
contact Babette
Marzheuser-Wood or Mark Abell.
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