The Treasury has published its response to its initial consultation on reforming the Consumer Credit Act 1974 (“CCA”), following the announcement in June 2022 of its intention to reform the CCA to ensure that it is fit for purpose, consistent with modern financial services regulation, and able to keep pace with modern times, with technological advancements and innovations, and with changing consumer needs.
The initial consultation was published as part of the government's Edinburgh Reforms and reform to the CCA will fit, strategically, with other opportunities for reform that have been opened up by Brexit including the development of the Smarter Regulatory Framework and the Consumer Duty. A total of 84 stakeholders responded to the consultation, and while all broadly supported the need for change, views on the scope and direction of the change needed differed. This will necessitate a careful approach to developing reform proposals and the need for continued engagement, by government, with a broad spectrum of stakeholders in order to work through the different views. Overall there seems to have been broad support for a fundamental rethink of the CCA so that the next evolution of it can “keep up with the rapid development of new products and the changing ways in which people engage with credit”.
As outlined in its response, the government plans to develop proposals that move the majority of the CCA into the FSMA model. This will involve repealing many of the provisions in the CCA and recasting them in the FCA rulebook. The intention is that this will create a “more flexible regime” which has consumer protection at its centre. However, it is recognised that there may be “specific aspects of consumer credit regulation that may warrant legislative based provisions” to create the full extent of the framework within which the detailed new rules will fit.
The government will also consider how its regulatory approach in the space of consumer credit can support other objectives including net zero, for example: enabling “sustainable consumer choices” and supporting the provision of finance for renewable energy solutions, whilst “ensuring appropriate consumer protection” which is the primary objective of the CCA.
Five principles will guide the government’s approach and these are that the reformed CCA will be:
- proportionate - appropriate protection for consumers balanced with “proportionate burdens on business”;
- aligned with related financial services regulations;
- forward-looking – agile and adaptable to future needs and changes;
- deliverable – building in transitional periods for both the regulated community and the regulators to adapt to the changes that are made; and
- simplified – using clear language that consumers and regulated firms can understand.
The five main areas on which stakeholder views on approach to reform were sought included:
- the scope of the CCA – including areas for a lighter regulatory touch and exemptions;
- definitions within the CCA – to consider whether the language of the CCA could be more modern and future-proofed;
- information requirements – including the possibility of changing very prescriptive information requirements and whether communication channels could be modernised and more sustainable;
- rights and protections – to ensure strong consumer protection, remove duplicative provisions and ensure consistency with the new Consumer Duty; and
- sanctions – to consider appropriate support and protections both to businesses and to consumers and appropriate disciplinary powers for the regulator.
While the response document discusses the variety of different stakeholders’ views on issues within each of these categories, the government has not yet come to any firm conclusions on how these areas will be reformed.
It is of note that the response evidences how mindful the government is of the need to promote financial inclusion and equality stating the intention “to ensure that people, regardless of their background or income, have access to useful and affordable financial products and services”, this includes consideration of the needs of consumers who may have issues with literacy and numeracy, to the mental health needs of consumers, to compatibility of the CCA with Sharia-compliant products, and to the requirement to eliminate unlawful discrimination.
Due to its scale and complexity, it is noted that CCA reform will take several years to deliver, requiring primary legislation, a detailed rulemaking process by the FCA, and appropriate transitional periods to allow industry to prepare and adapt to new rules.
The government intends to produce more detailed proposals, “with a view to publishing a second stage consultation in 2024 to seek comment from stakeholders”. Before that, the government will “engage further with stakeholders to inform its proposals, both through bilateral meetings and broader roundtables”.
“The government continues to believe that reform will facilitate innovation in the credit sector, increase accessibility of credit products, and contribute to growth in the sector and the economy more broadly. The government also sees this as an opportunity to bolster existing consumer protections to ensure customers remain adequately protected in a modern and increasingly digital economy”. However, there is currently no specific timeline and we will have to wait longer for further details of what the new and improved CCA regime will actually look like in practice.
"Back in 1974, the [CCA] was a landmark piece of legislation which replaced a confusing and disparate framework of credit regulation with a new and comprehensive set of protections for consumers. It represented radical reform for its time and has served the UK well for many decades. However, the world has been transformed since 1974. In particular, the internet has revolutionised how we communicate, shop and how many people manage their finances. While it was well designed for its time, the CCA is increasingly under strain to deliver a 21st century customer experience. The existing legislation is ill adapted to technology that was not conceived of almost 50 years ago. It poses challenges for financing emerging technologies like electric cars and enabling online customer journeys via smartphones….”