Does the Consumer Credit Act apply to a loan to a company?

No. Section 189(1) of the Consumer Credit Act 1974 defines individual to include a partnership consisting of two or three persons not all of whom are bodies corporate, and an unincorporated body of persons which does not consist entirely of bodies corporate and is not a partnership. A company borrowing on its own account is not an individual, so the agreement is not a regulated consumer credit agreement and the prescribed form requirements in section 61 do not apply.

Can a borrower cancel a UK loan agreement?

Where it is a regulated consumer credit agreement, section 66A of the Consumer Credit Act 1974 gives the debtor 14 days to withdraw without giving any reason, running from the day after the relevant day, after which the debtor must repay the credit and the interest accrued on it within 30 days. The right does not apply to agreements for credit exceeding 60,260 pounds other than residential renovation agreements, agreements secured on land, restricted-use credit to acquire land, or bridging loans.

How long does a lender have to sue on an unpaid loan?

Section 5 of the Limitation Act 1980 provides that an action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued. Section 8 gives twelve years for an action upon a specialty, subject to any shorter period prescribed elsewhere in the Act, which is why loan agreements executed as a deed have a longer enforcement window than those signed as simple contracts.

Loan Agreement in the UK

The dividing line in UK lending is whether the borrower is an individual. Section 189(1) of the Consumer Credit Act 1974 defines that term so as to exclude bodies corporate, so a loan to a limited company falls outside the consumer credit regime while a loan to a person or a small partnership generally falls inside it. Business borrowing above 25,000 pounds has a separate exemption.

Download the UK drafting checklist (.docx)Where to read UK law

Governing law

The Consumer Credit Act 1974 governs the form and content of regulated consumer credit agreements, and the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 determines which agreements are regulated and which are exempt.

Consumer Credit Act 1974, s.61

What a loan agreement has to contain in the UK

A regulated agreement is properly executed only if a document in the prescribed form containing all the prescribed terms is signed by the debtor and by or on behalf of the creditor, embodies all the terms other than implied terms, and is readily legible when presented for signature.
Consumer Credit Act 1974, s.61
The debtor under a regulated consumer credit agreement may withdraw within 14 days without giving any reason, the period running from the day after the relevant day, and must repay the credit with accrued interest within 30 days. The right does not apply to credit exceeding 60,260 pounds other than residential renovation agreements, agreements secured on land, restricted-use credit to acquire land, or bridging loans.
Consumer Credit Act 1974, s.66A
Individual includes a partnership consisting of two or three persons not all of whom are bodies corporate, and an unincorporated body of persons which does not consist entirely of bodies corporate and is not a partnership. A company borrowing on its own account is not an individual.
Consumer Credit Act 1974, s.189(1)
A credit agreement is exempt where the lender provides credit exceeding 25,000 pounds and the agreement is entered into wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower. A signed declaration complying with FCA rules creates a presumption to that effect.
Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, art. 60C
An action founded on simple contract may not be brought after six years from the date the cause of action accrued, while an action upon a specialty may not be brought after twelve, which is why a loan executed as a deed has a longer enforcement window.
Limitation Act 1980, ss.5 and 8

What catches drafters out

Treating the business exemption as automatic. It requires credit exceeding 25,000 pounds for business purposes, and the presumption from a signed declaration falls away where the lender knows or has reasonable cause to suspect otherwise.
Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, art. 60C
Assuming a partnership borrower is outside the consumer regime. Section 189(1) treats a partnership of two or three persons not all of whom are bodies corporate as an individual, so the agreement can be a regulated consumer credit agreement.
Consumer Credit Act 1974, s.189(1)
Issuing a claim without pre-action steps. The Practice Direction on Pre-Action Conduct and Protocols expects a letter of claim, a response within a reasonable time, disclosure of key documents and consideration of alternative dispute resolution, and a court may order costs against a non-compliant party or adjust interest.
Practice Direction on Pre-Action Conduct and Protocols