The Act lists the following types of credit agreements which are controlled:-
(i) The Hire-Purchase Agreement is an agreement which bails goods to the intending purchaser, the property in the goods passing to the bailee when the terms of the agreement are fulfilled. A bailee is any person who comes into possession of other people’s goods. When I agree to sign a hire-purchase agreement I agree to hire goods from their owner, paying for them by instalments and finally purchasing them for a purely nominal sum at the end of the hire.
The situation is complicated by the fact that retailers can rarely afford to finance the transactions themselves, so that retailers can rarely afford to finance the transactions themselves, so that the agreement is often concluded with a consumer credit business, the retailer merely acting as the agent of the credit business. In the past, finance companies have proved to be quick to assert their rights and aggressive in the collection of sums due. The Office of Fair Trading is designed to overcome this type of abuse and encourage more professional attitude.
(ii) A consumer credit agreement. This is a personal credit agreement, where one person provides credit to the other person up to a limit of Rs. 4, 00,000. It does not apply to certain exempt agreements, such as those made with Building Societies, Trade Unions, Local Authorities, etc., about the purchase of land and dwelling houses.
(iii) A Credit-Sale Agreement is an agreement to sell goods by instalments not being a conditional-sale agreement. With this type of agreement the sale is an ordinary sale of goods, the property passing to the new owner at once.
It is usually used for sale of clothing and similar articles where repossession is undesirable because the goods have ceased to be worth-reselling.
(iv) A consumer hire agreement. This is an agreement made with an individual to hire goods to him, which is not a hire purchase arrangement-in other words, the hirer never becomes the owner of the goods.
(v) A personal credit agreement, which is an agreement between one individual and another by which the latter provides the former with credit of any amount.
(vi) Running-account credit, where a sum of money is specified to which the debtor can turn from time to time as required so long as he does not exceed the credit limit.
(vii) Credit taken agreements are agreements whereby a card voucher, coupon or similar object is given to an individual who is then able to obtain goods, cash or services on credit by production it either to the creditor or to some third party such as a shopkeeper or hotelier, or even a mechanical device such as a cash dispenser.
(viii) A conditional Sale Agreement is one for the sale of goods or land by instalments where the passing of the property to the buyer is conditional upon the payments beings completed. It is therefore like a hire purchase agreement accepts that the buyer is a bailee under a contract of conditional sale instead of a contract of bailment.
Organizing Prosperity-Hire Purchase Controls as an Instrument of Government Policy
Because hire purchase is so attractive to the masses it is a useful tool with which the government can control the economy. If a depression exists, and the Government wishes to promote employment, it can ease the hire- purchase controls. This usually means that the hire- purchase deposits required by law are reduced, and the periods of repayment lengthened
This will permit thousands of people to obtain goods for which they had been saving, and will promote sales of consumer durable goods. This will mean more employment in the factories where such goods are made, and the incomes enjoyed by the new employees will promote trade in other fields of production. Conversely, if over-full employment is producing inflation, with rising prices and rising wage demands, a tightening of hire-purchase controls will reduce the demand for goods and services, cut employment and give a deflationary effect in the levels of business activity. The effectiveness of hire-purchase has been reduced somewhat in recent year.
The use by an increasing number of people of the ordinary banking system of personal loans and overdrafts has enabled them to pay cash for goods. The repayments are made to their bankers rather than to a Hire-Purchase Finance Company. This is usually less expensive.
The use of systems like ‘Barclaycard,’ with its instantaneous overdraft to reliable customers, also circumvents the H.P. system. The sale of goods at discount rates to privileged customers by wholesalers, bypasses the retail trade altogether, and represents a further incentive to the purchaser to borrow money and pay in cash. For poorer people the system of Trading Checks, which are paid for in the following 20-week period to a tally man’ who calls at the customer’s house also permit ‘cash’ dealing instead of hire purchase.