What Is the Uniform Consumer Credit Code (UCCC)?

The Uniform Consumer Credit Code (UCCC) is a draft law, adopted by 11 states, that governs consumer credit transactions. It establishes rules related to the issuance and use of all types of credit products from credit cards to mortgages. The code is intended to protect consumers from fraud and unfair practices on the part of lenders.

How the Uniform Consumer Credit Code (UCCC) Works

The Uniform Consumer Credit Code was approved by the National Conference of Commissioners on Uniform State Laws in 1968 and revised in 1974. The code is not in itself a federal or state law, but states may use it in order to write consistent consumer credit laws.

Although it's not if effect nationally, the code has been adopted by 11 states—Colorado, Idaho, Indiana, Iowa, Kansas, Maine, Oklahoma, South Carolina, Utah, Wisconsin, and Wyoming—with other states incorporating at least some of its provisions into their laws.

One of the most significant guidelines in the UCCC is the limitation on interest rates charged by lenders. However, the actual ceilings on rates vary according to the type of credit issued. The code also encourages lower interest rates by limiting barriers to entry in the consumer credit field. The codes do this on the theory that more competition will result in lower consumer interest rates.

Beyond protection from usury—the illegal lending of money and charging of unreasonably high fees—many of the guidelines concern the establishment of fair contracts issued to consumers by lenders. For instance, the code prohibits the use of waiver-of-defense clauses in lending. A waiver-of-defense clause states that a borrower relinquishes the right to any legal defense in the event of a conflict with the lender. Such provisions allow a lender to receive a summary judgment against a borrower with no opportunity for protection in either court or arbitration.

The code also limits so-called "unconscionable transactions." What constitutes an unconscionable transaction can be subject to interpretation, but it typically involves negotiations that are so overwhelmingly one-sided as to be deemed unenforceable. These unilateral practices may include warranty disclaimers or the blatant misrepresentation of products.

Federal law has superseded some of the code's guidelines. One example is restrictions on aggressive collection practices, which are now governed by the Fair Debt Collection Practices Act (FDCPA). Another is the original guideline on disclosure of loan terms. The Truth in Lending Act (TILA) now contains those rules.

History of the Uniform Consumer Credit Code (UCCC)

As mentioned above, the UCCC was established in 1968 as a way to protect consumers from predatory and questionable credit transactions. Amendments were made in 1974 to update the code as the financial industry and legal landscape were changing.

For example, credit cards were a relatively new type of consumer credit when the first version of the code was written. But with the increase in credit card usage, the current UCCC guidelines have proven crucial to safeguarding consumers. One primary directive says the bank issuing a credit card is also subject to the claims of a cardholder against a merchant.

As new technologies and systems become available and the financial landscape changes, certain services remain exempt from the UCCC. As an example, income-share agreements (ISAs) introduced by Purdue and other by universities have not been subject to the UCCC. Under such agreements, an educational institution takes on a portion of the student's expenses in exchange for a share of their future income.

The UCCC was developed by the National Conference of Commissioners on Uniform State Laws—also known as the Uniform Law Commission. The commission was created in 1892 to help states draft laws "on subjects on which uniformity across the states is desirable and practicable." More than 300 commissioners—all of whom are lawyers—are appointed by the 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.

To date, the commission has been responsible for more than 300 uniform acts including the UCCC and the Uniform Commerical Code (UCC). The UCC is a set of laws and regulations meant to help standardize business transactions between entities in different states. The code was established in 1952 in response to the problems companies faced doing business across state lines. Now adopted universally by all states, the UCC provides legal guidelines and standards that govern transactions such as banking and lending.

Other uniform acts developed by the commission cover a variety of legal matters, including family and domestic law, real estate, probate, commercial law, dispute resolution, trusts, and estate law.

The Bottom Line

The Uniform Consumer Credit Code (UCCC) establishes legal rules to protect consumers who use credit in the states where it has been enacted. It works in conjunction with a variety of federal laws with the same aim.