“Modernise, modernise, modernise!” seems to be the Government agenda for reform of the Consumer Credit Act 1974 (CCA). It is widely agreed that the existing regime is outdated, complex and restrictive for both lenders and consumers alike and reform is needed to bring in legislation that is forward thinking and in line with the operation of today’s financial services market.

Since the CCA’s implementation over 50 years ago, we have seen significant changes in consumer habits, such as the introduction of buy now pay later credit, the creation of new payment technologies and a surge in online ordering. The market has long complained that the current rules are no longer fit for purpose and need to be dragged into the modern world of ApplePay, Klarna and Amazon delivery.

The opportunity for reform is widely welcomed and industry reports seem to agree with the principles which are directing the review. So what are the principles that lie behind the Government’s thinking?

FLEXIBILITY AND ADAPTABILITY
To keep pace with market changes, one of the primary goals of the Government’s CCA reform is to transfer regulation from statute to the FCA Handbook. There were enforced changes to the CCA in 2014 when the FCA took responsibility of the market from the OFT and as part of this, certain provisions were moved to the FCA’s remit. However, the reform was piecemeal and many agree unsatisfactory. The rationale for extending this exercise is to modernise and streamline regulation for the benefit of consumers and business and allow for quick amendment to move with market demands and trends.

However, this is a double-edged sword. There is a compliance cost for rule changes and upkeep, and this is placed at the door of funders. Funders have already seen hikes in their annual fees and levies and it will be of great importance to them that this doesn’t become a default position.

Although a full overhaul is a great opportunity to review and update some of the pre-existing CCA rules, we are also cautious if greater power is given to the FCA, will this require additional oversight? Will there be an increased cost to lenders? As always there is a balance to be struck between protecting consumers and ensuring that the market functions properly and competitively.

CONSUMER HABITS AND ENTERPRISE
Consumer habits and requirements are changing. There has been a move to subscription services rather than traditional borrowing, with less importance placed on “ownership”. There is a real complaint that “it takes credit to get credit” and that the Gen Z percentage of the market are barred from credit products due to income and tight algorithms regarding ability to repay. This end of the market are more incentivised to explore more digital and creative markets and expect their funders to be as agile and big thinking as them.

To combat this, the Government is seeking views on whether the existing business lending scope needs to be changed to reflect these social changes. Currently, sole traders and small partnerships are caught by regulation if the amount of the loan or rental payments is below £25,000. As a result, lending to unincorporated businesses under £25,000 is often avoided by funders which acts to stifle small enterprise or new start-ups.

E-TECHNOLOGIES AND PROCESSES
E-technologies have moved quickly, especially since the COVID 19 pandemic. This saw a significant shift towards e-signing and an increase in finance apps and online banking. We expect a replacement of most of the CCA’s information and notification requirements to reflect the move to e-platforms.

Any change should be designed to make consumer credit regulation more dynamic, allowing for easier amendment of these requirements in the future. Similarly, email and electronic communication should be encouraged. Further, we expect that lenders will be given more flexibility in this area and handed the responsibility to decide how to balance the associated risks when it comes to consumer detriment.

GREEN AGENDA
One area that is already charging forwards is green financing. There is a drive both from governments and consumers to place more importance on sustainability, environmental impact and green focused initiatives. Consumers are also keener than ever to work with firms whose environmental views align with their own.

We expect to see the green agenda given greater emphasis, with a focus on the removal of barriers that currently make it harder for lenders to offer finance for renewable energy solutions (including electric vehicles). But will the reform go further? Will there be incentives for firms who pursue a sustainable agenda – and will this become a consideration for FCA authorisation?

We still await the feedback which has been given to the consultation, which was due to be published in May this year. It will be interesting to see how radical the Government’s approach will be. The previous act has weathered the creation of the internet, mobile phones, Apple Pay, online banking and home delivery – and now the sell by date is clear. Given that the way we bank, spend and finance our lifestyles is evolving at speed, it is essential that the “new release” CCA can keep up with, if not look ahead of, market and technology trends. Predicted new technologies in the next fifty years include an entire dependency on renewables, space vacations, and autonomous human robots. Therefore, the new CCA need to be simpler and more agile at the same time as offering protection for the vulnerable and enough dynamism to encourage new lenders to market.