In December 2022, HM Treasury announced a consultation on reform of the 1974 Consumer Credit Act (the CCA). The consultation document is available here.
For almost fifty years, the Consumer Credit Act 1974 (CCA) has ensured effective regulation for consumer credit, which covers the overwhelming majority of the UK’s non-mortgage consumer lending market. The CCA was a landmark piece of legislation, replacing a confusing and disparate framework with a new and comprehensive set of protections for consumers. However, over the last fifty years, the way that consumers interact with credit products has evolved significantly, and many innovative credit products exist today that did not when the regime was designed.
The UK government has repeatedly transferred parts of the CCA out of legislation and into the more agile regulatory framework of the Financial Conduct Authority. The most notable of these transfers occurred in 2014 when much of the regulation of consumer credit was transferred from the Office of Fair Trading to the FCA
Since this transfer, many stakeholders, including both industry and consumer groups, have been asking for further reform of the CCA. The existing regulatory landscape, which includes the CCA and the FCA’s rules, has become too complex and contains overlap that restricts optimal outcomes for consumers and businesses. Additionally, the EU Consumer Credit Directive (CCD) was implemented in the UK through changes to the CCA, which has added to the increasingly fragmented regulatory system.
In June 2022, the government announced its intention to address this by undertaking reform of the CCA, with the ambition of moving the majority of the Act from statute to FCA rules. This consultation document is the first step of that reform, which, due to its scale and complexity the government envisages will take a number of years. The overall objective of this reform is to modernise and streamline regulation to the benefit of consumers and businesses. In practice, this will mean creating a simpler, more focused regulatory regime for consumer credit and modernising consumer credit regulation so that it follows more closely the approaches used in other areas of financial services regulation.
Key points are set out below.
Definitions
In order to create a modern and simpler regulatory regime, this reform may need to consider whether certain key terms should be defined or have their existing definitions clarified.
Business lending scope
The CCA does not apply to limited companies, limited liability partnerships or to lending or hire for over £25,000 for business purposes. Because business lending over £25,000 is generally not subject to CCA regulation, some stakeholders report that lending under £25,000 to businesses is often avoided.
Information requirements
The government believes that there is a clear rationale for moving almost all the information requirement provisions from the CCA into the remit of FCA rules.
Rights and Protections
The government believes that there is a good case for amending the FCA’s rule-making power under FSMA or exploring whether another mechanism could be used to enable FCA rules to replicate the regulatory outcome of the current CCA rights and protections.
Sanctions
The government’s view is that this reform presents an opportunity to concentrate some of the remedies afforded to consumers into the FCA toolkit. This will make for a simpler and more modernised regime, aligned with other areas of financial services.
Criminal Offences
The FCA’s view is that, in general, the criminal offenses in the CCA are no longer needed given the regulatory toolkit supplied by the Financial Services and Markets Act.
Small Agreements
Some parts of the CCA do not apply to ‘small agreements’. A small agreement is defined in Section 17 of the CCA as a regulated consumer credit agreement for credit not exceeding £50, other than a hire-purchase or conditional sale agreement.
The issue of small agreements was considered in the Buy Now Pay Later (BNPL) consultation response, where it was decided that to ensure consistency in consumer protection across current exempt BNPL agreements captured by the scope of regulation, the government intends to disapply section 17 of the CCA for these agreements when they are brought into regulation. The government considered that this was necessary because BNPL is frequently used for agreements below £50.
If you’d like to know more about how we can help you with your consumer credit or BNPL arrangements or any other regulatory compliance issues, our specialist team is here to help.
Contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.