This year marks what could be a major revolution in UK consumer credit law, with HM Treasury (HMT) in June announcing planned reforms to the Consumer Credit Act (CCA). The CCA regulates all credit cards, personal loans and retail asset finance. The Government will move retained provisions in the CCA from statute to sit instead under the framework of the Financial Conduct Authority (FCA). Firms and consumers alike should keep an eye on these developments. For firms, depending on how the regime takes shape, changes will likely be needed to their systems, front and back books, agreements, servicing arrangements and policies.

The aims of the reform are to modernise and simplify the CCA. The Government described the existing regime as “highly prescriptive and increasingly cumbersome and inflexible – confusing consumers and adding unnecessary costs to businesses when implementing its requirements”. The stated intention of moving much of the CCA from statute to sit under FCA rules is to:

1. enable the FCA to respond quickly to emerging developments in the consumer credit market, rather than having to amend existing legislation; and simplify ambiguous technical terms to make clear to consumers what protections they have, and make it easier and more cost effective for businesses to comply with regulation.
2. In the spirit of Brexit and the resulting opportunity for UK regulatory reform, the proposed CCA reform is likely to mark a significant philosophical change to the consumer credit regime, rather than the ‘lift and shift’ exercise undertaken when the FCA took over the regulation of the consumer credit market. The Government has made clear that its approach now will be different, with a view to crafting and creating a consumer credit regime that is more outcomes based and “better suited to the needs of the British people”.

There are three key themes of the reform, which build on the recommendations of the FCA’s retained provisions report in 2019 and the Woolard Review. These are:

1. INFORMATION REQUIREMENTS
HMT will consult on repealing all information requirements that currently sit in the CCA. The FCA will then consult on handbook rules to sit in CONC that will govern the form and content of pre-contract disclosures, agreements and post-contractual notices (similar to the current regime in MCOB). HMT and the FCA are clear that this will not be a ‘lift and shift’ exercise. Instead, this will be an opportunity to review in detail the relevant requirements and consider what information consumers need, and when and how it should be transmitted to them.

As echoed in HMT’s June press release, there is a clear desire to move away from tick box regulation to more principles outcomes based requirements, albeit with recognition and acknowledgment that a certain level of prescription will be required (e.g. for total cost of credit assumptions if customers are to be able to compare products across the market). Clearly there will be significant work involved here for the FCA (and ultimately also for firms). Firms are likely to need to review their origination and servicing processes, as well as customer facing documents (such as credit agreements and post-contractual notices) in full.

2. SANCTIONS
HMT will undertake a review of the sanctions regime in the context of other consumer protections which have been introduced since the CCA was implemented (such as the upcoming Consumer Duty and personal liability under Senior Managers and Certification Regime). The review will need to take account of the current landscape in the broadest sense in order to ensure that sanctions are not duplicative and bring genuine, targeted and proportionate consumer protections.

3. RIGHTS AND PROTECTIONS
The key right and protection is section 75 of the CCA which will be retained. There is a question for HMT as to whether they retain section 75 in the CCA itself or move it into another piece of legislation. No decision has been taken on that yet. However, HMT will consult on the issues with section 75 that the FCA identified in its 2019 retained provisions report; HMT has already had a number of conversations about section 75 in bilateral meetings with firms.

Addleshaw Goddard is engaged in the work on these reforms and we consider that they represent both an opportunity for firms as well as the need to be mindful of emerging risks. In terms of next steps, we understand from HMT that they will publish a high-level consultation in December 2022, and the response will be published in spring 2023. Thereafter, there will be a detailed second consultation in 2023/24, and the development and implementation of legislation is expected in 2024/25. We would encourage firms to meaningfully engage in HMT’s consultation process.