OUT WITH THE OLD
A REVIEW OF THE CONSUMER CREDIT ACT IS UNDERWAY

CCTA

The Consumer Credit Act of 1974 covers all credit agreements in the UK, from credit cards to personal loans. There are few households across the country that will not hold some form of agreement that falls under it.

At the point of creation, to provide protection to consumers, the Act was and continues to be very prescriptive about what lenders can and cannot do. There are strict rules about consumer rights and what must be communicated with the customer. It still predates much of the current system of financial services regulation.

Fifty years on from its introduction, the credit market has changed dramatically. The advent of online lending and the exit from the European Union mean some of the rules no longer make sense or just don’t work with new developments. It is not surprising then, that for some time, there have been calls for this somewhat outdated piece of legislation to be reviewed.

Finally, in the winter of 2022 the Government issued a consultation, seeking views on how to reform the Act. The Government outlined its intentions, which seek to improve access to credit and increase consumer protection in a digital economy. A response to that consultation followed last summer including next steps.

The plan is for much of the Act to be transferred over to the Financial Conduct Authority (FCA) Handbook. The aim of this is to allow the regulator to quickly respond to emerging developments in the consumer credit market, rather than having to amend existing legislation which can be onerous and requires parliamentary time.

And there are benefits that this style of reform would bring. Hopefully changes will mean that consumers are less confused by the information lenders must provide. We often hear reports of customers questioning why they have been contacted when they requested not to be or that they don’t understand the jargon they have received.

The new system should also grant credit providers more flexibility. The regulatory burden might be reduced too and may lead to some cost savings.

However, recent experiences in alternative credit, mean we as an association, have reservations about much of the Act transferring over to the FCA Handbook. There are concerns that this will leave future regulation further open to interpretation by the FCA and the Financial Ombudsman Service (FOS) in the future.

Since responsibility for regulation transferred over to the FCA, and with that the removal of rule-based regulation, we have seen the publication of short principles that are then developed and interpreted by FCA officials. The results are not always consistent and interpretation from the FOS adds a further layer of complexity, especially when rules have been applied retrospectively in some cases.

At a time when the Consumer Duty is also being introduced, providing a further regulatory tool for the FCA to use in their assessment of compliance, concerns us that it may become more difficult and confusing for firms to understand regulatory requirements – or for the regulator to quickly move the goal posts.

The Treasury is now at the stage where it is looking to engage with industry on the current proposals. An industry group has been established, bringing together a range of trade associations to assist in reviewing the Act. The first meeting has taken place, which agreed to explore the scope of the review and the sections of the Act that need to be redeveloped

At a time when the Consumer Duty is also being introduced … we are concerned that it may become more difficult and confusing for firms to understand regulatory requirements.

A more detailed consultation on policy proposals is expected in the second half of this year following the initial work of the industry group. We have already begun to express our views that a more flexible system will not necessarily be helpful to credit firms. Part of this review is about ensuring access to credit but the Treasury will need to be careful that more firms do not exit as a result of a changed system of regulation.

There are other considerations such as the need to address regulation of the Buy-now Pay-later products along with the well reported rise in people turning to illegal lenders.

We will of course keep members updated on the project and how the work of the industry group progresses. It is always interesting to hear your views too. If you have thoughts on how the Consumer Credit Act could be reformed for the better, please get in touch.