Government announces intention to reform the Consumer Credit Act 1974

On 16 June 2022 the government announced its intention to reform the regulatory regime based around the Consumer Credit Act 1974¹. The first stage of that reform, a consultation on modernising consumer credit legislation, was published on 9 December 2022 and ran to 11:59pm on 17 March 2023². HM Treasury describes the document as the first step of a process it expects to take a number of years¹.

The CCA has governed consumer credit for fifty years, and the government says the regime built around it has become too complex, with overlap between the Act and FCA rules¹. Since 1974, over thirty pieces of subordinate legislation have amended the CCA, and the EU Consumer Credit Directive was implemented in the UK primarily through the Consumer Credit (EU Directive) Regulations 2010¹. The government's stated ambition is to move the majority of the Act from statute to FCA rules¹.

The scale of the market is set out in the consultation. The UK's £200 billion non-mortgage consumer lending market is one of the largest consumer-facing sectors in UK financial services¹. Around 36,000 firms are authorised by the FCA with credit permissions, the bulk of which are credit brokers, and about 6,000 individual firms have permissions to enter into consumer credit or consumer hire agreements¹.

The consultation covers the CCA's provisions by category, asking how they might be replicated in FCA rules, and asks how reform could increase access to credit and financial inclusion¹. It also notes that some sections of the CCA are specific to Scotland and some to Northern Ireland¹. The government says it will have due regard to the Public Sector Equality Duty at each stage¹.

Why it matters for households

The CCA sits behind the rights attached to credit cards, personal loans and consumer hire agreements used by UK consumers². Its provisions give consumers specific statutory protections separate from those provided by FCA rules, and firms offering regulated credit and consumer hire agreements must be authorised by the FCA and comply with both sets of requirements¹. Moving provisions from the Act into FCA rules would change where those protections sit, and the consultation asks how customer communications, consumer protections and sanctions for firms that do not adhere to regulatory standards should work². The FCA's rules for consumer credit are set out in its CONC sourcebook, and its Principles for Businesses include Principle 6 on treating customers fairly¹. The consultation also notes that many Buy-Now Pay-Later products are not regulated under the CCA, so lenders do not need to be FCA authorised¹. No changes to the rules take effect from the consultation itself.

What happens next

The consultation closed on 17 March 2023². On 10 July, the government published a response, saying stakeholders were overall supportive of reforming the CCA and that it plans to move forward with an ambitious overhaul². As a next step it will undertake policy development to produce more detailed proposals, with a view to publishing a second stage consultation in 2024². The FCA will consult on its approach to any new rules in due course, and implementation of the final approach will likely require primary legislation, brought forward when parliamentary time allows¹.