Government announces intention to reform the Consumer Credit Act

The government announced its intention to reform the Consumer Credit Act 1974 (CCA) on 16 June 2022¹. The CCA governs the regulation surrounding billions of credit card purchases, personal loans and consumer hire agreements made by UK consumers every year, according to HM Treasury¹. The announcement was made alongside the government's response to its separate consultation on the regulation of buy now, pay later (BNPL) products, which concluded on 6 January 2022².

The first stage consultation on reforming the Consumer Credit Act was published by HM Treasury on 9 December 2022 and ran until 11:59pm on 17 March 2023¹. It asked stakeholders for input on the strategic direction of reform, including questions on customer communications, consumer protections, sanctions for firms that do not adhere to regulatory standards, the accessibility of credit and financial inclusion¹. The government said it intended the reform to facilitate innovation in the credit sector and increase accessibility of credit products, and described it as an opportunity to bolster existing consumer protections "to ensure customers remain adequately protected in a modern and increasingly digital economy"¹.

On 10 July 2023 the government published its response to the consultation¹. It said stakeholders were overall supportive of reforming the CCA and that it planned to move forward with an ambitious overhaul¹. The government said it would undertake policy development to produce more detailed proposals, with a view to publishing a second stage consultation in 2024¹.

The BNPL response published on 20 June 2022 set out related plans. The government said the scope of regulation should capture BNPL as well as currently exempt agreements, referred to as short-term interest-free credit (STIFC), when provided by third-party lenders, and that it was "minded to extend" this to STIFC provided directly by merchants where offered online or at a distance². It said section 75 should not be disapplied for agreements brought within the scope of regulation, and that current CCA requirements on post-contractual information, particularly timing, may need to be tailored for BNPL and STIFC agreements given their sometimes very short-term nature². Further information on merchant-provided STIFC was requested by 1 August 2022². The government said it intended to publish and consult on draft legislation at the end of 2022, with the aim of laying secondary legislation in mid-2023².

Why it matters for households

The CCA underpins the rights borrowers have under consumer credit agreements, including the information lenders must give and the protections attached to regulated agreements. Any change to it therefore touches the terms on which people hold credit cards, personal loans and consumer hire agreements, and the section 75 protection that applies to some credit purchases. The BNPL plans would bring interest-free agreements that are currently unregulated into the regulatory framework, which the government said should include access to the Financial Ombudsman Service for issues concerning the conduct of lenders². The government also said clear, consistent and timely credit reporting across the three main credit reference agencies would be an important part of the responsible provision of BNPL products². No change to the rules took effect on the dates of these announcements; the reform was at consultation and policy development stage¹.

What happens next

The first stage consultation closed on 17 March 2023 and the government published its response on 10 July 2023¹. It said it would carry out policy development with a view to publishing a second stage consultation in 2024¹. For BNPL, the government said it aimed to lay secondary legislation in mid-2023 confirming the scope and framework of the new regime, with the Financial Conduct Authority consulting in parallel on its approach to rules changes². No further dates have been reported.