Government consults on reforming the Consumer Credit Act 1974

The Government issued a consultation in the winter of 2022 seeking views on how to reform the Consumer Credit Act 1974, according to the Consumer Credit Trade Association (CCTA)¹. The Act covers all credit agreements in the UK, from credit cards to personal loans, and the CCTA says there are few households that do not hold some form of agreement falling under it¹.

The Government set out intentions that "seek to improve access to credit and increase consumer protection in a digital economy"¹. The plan is for much of the Act to be transferred to the Financial Conduct Authority (FCA) Handbook, so the regulator can respond quickly to developments in the consumer credit market rather than waiting for legislation, which requires parliamentary time¹. The CCTA notes the Act was and remains very prescriptive about what lenders can and cannot do, with strict rules on consumer rights and what must be communicated to customers, and that it predates much of the current system of financial services regulation¹.

The CCTA, an industry body, has reservations about much of the Act moving to the FCA Handbook, saying this could leave future regulation more open to interpretation by the FCA and the Financial Ombudsman Service¹.

The CCTA also raises the need to address regulation of buy-now pay-later products and what it describes as the well reported rise in people turning to illegal lenders¹. It says the Treasury is engaging with industry on the proposals, and that an industry group of trade associations has been established, with a first meeting that agreed to explore the scope of the review and which sections of the Act need to be redeveloped¹.

Why it matters for households

The Act governs the paperwork and rights attached to most consumer credit, so changes to where the rules sit affect what lenders must tell borrowers and how complaints are handled. The CCTA says the new system should mean consumers are less confused by the information lenders must provide, citing reports of customers questioning why they were contacted after asking not to be, or not understanding the jargon they received¹. It also says credit providers could gain more flexibility and that the regulatory burden might be reduced, potentially leading to some cost savings¹. The CCTA warns the Treasury will need to be careful that more firms do not exit as a result of a changed system of regulation, and that a more flexible system will not necessarily be helpful to credit firms¹. The FCA's Consumer Duty is being introduced at the same time, which the CCTA says adds a further regulatory tool for the FCA in assessing compliance¹. The CCTA's account does not state which agreements would be affected first or give a date from which any change would apply.

What happens next

A response to the consultation followed last summer including next steps, according to the CCTA¹. A more detailed consultation on policy proposals is expected in the second half of the year following the initial work of the industry group¹. The CCTA says it has begun expressing the view that a more flexible system will not necessarily be helpful to credit firms¹. No further dates have been reported.