A declined application does not remove the need to replace an essential appliance, repair a vehicle needed for work, meet an unexpected bill or manage irregular income. Where regulated options disappear, that need may lead to unnecessary arrears, informal borrowing or illegal lending.

For 135 years, the Consumer Credit Trade Association has represented non-bank lenders, including the smaller and specialist firms that form an important part of the UK credit market. The products, technology and regulatory framework have changed considerably over that period. Still, the central policy question remains familiar: how can consumers be protected while responsible credit remains available to those who need it?

There is no simple answer. Consumer credit involves difficult trade-offs, and credible reform must confront them directly.

Access to responsible, regulated credit is a legitimate positive consumer outcome.

This does not mean that every application should be accepted. Where borrowing would be unaffordable or unsuitable, declining the application will be the right and necessary decision.

However, the UK market doesn’t operate well. The regulatory framework must also consider whether consumers who could borrow sustainably are being unnecessarily excluded by overly conservative models, inflexible assessments or uncertainty about regulatory expectations.

This matters particularly for people with variable incomes, thin or impaired credit files, who do not fit mainstream automated lending. There are about 16 million adults poorly served by those models.

Many of these consumers could borrow sustainably. Without appropriate regulated options, they may face higher risks elsewhere.

The aim should therefore be to manage the risks associated with lending without overlooking the risks created by exclusion.

Reform of the Consumer Credit Act is a clear test of whether policymakers can achieve this balance.

There is a strong case for modernisation. Parts of the legislation were designed for a different market and do not always work effectively with digital products, online customer journeys or modern communications.

Detailed requirements can nevertheless provide certainty. Firms know what they must do. Consumers know what they should receive. The market operates under a common, relatively durable standard.

Moving requirements from legislation into Financial Conduct Authority rules may provide greater flexibility. But flexibility without sufficient clarity could create new uncertainty.

It would place greater weight on interpretation by firms, FCA supervisors and the Financial Ombudsman Service. Where those interpretations differ, firms may struggle to understand which standard they are expected to meet.

Firms should be able to rely on the rules that apply to them. Individual decisions should not set market-wide standards without appropriate scrutiny, clear regulatory alignment, and a fair opportunity for firms to adapt.

The central issue is therefore not simply where the requirements sit. It is whether the future framework will be clear, predictable, consistently applied and sufficiently durable.

Reform must not replace outdated prescriptions with regulatory uncertainty.

Regulatory uncertainty does not affect every firm equally.

Smaller lenders do not have the same legal, compliance, systems or financial resources as the largest institutions. Many regulatory costs are also fixed rather than proportionate to the size of the lender, the number of customers it serves or the value of its lending.

The cumulative effect can influence whether firms invest, develop new products, continue serving higher-risk consumers or remain in the market at all.

This matters because smaller and specialist lenders contribute to a diverse credit market. Alongside banks, credit unions and community development finance institutions, they provide options for consumers with different needs and circumstances.

No single type of provider can meet the full range of consumer needs. Community and not-for-profit lenders make an important contribution, but they cannot replace responsible commercial lending at the scale required.

A framework that smaller providers cannot navigate confidently risks reducing competition, product choice and access. Once responsible lending capacity is lost, it may also be difficult to rebuild.

Proportionality must therefore be visible throughout the regulatory system. It should apply not only to the drafting of rules, but also to supervision, reporting, enforcement, redress and implementation.

Reform should be judged not only by the standards it sets, but by whether responsible firms of different sizes can understand and meet them.

These clarifications would help firms and consumers:

1. Does it protect consumers from lending that is unsuitable or unaffordable?
2. Does it avoid unnecessarily excluding consumers who can borrow sustainably but do not meet mainstream lending criteria?
3. Is it clear, predictable and consistently applied by the FCA and the Financial Ombudsman Service?
4. Can firms of different sizes implement it in proportion while continuing to support competition, innovation, and responsible access?

These objectives will not always sit comfortably together. That is precisely why the trade-offs must be recognised rather than avoided.

A successful framework will not measure consumer protection solely by the number of applications declined or the amount of credit removed from the market. It will consider outcomes across the whole consumer journey, including what happens when regulated credit is unavailable.

Consumer lending reform should protect people from harmful borrowing. It should also support a diverse, sustainable market that serves consumers who can borrow responsibly.

Those are not competing ambitions. Lasting reform depends on achieving both.