HM Treasury opens consultation on reforming the Consumer Credit Act 1974

HM Treasury published a consultation on 9 December 2022 on reforming the Consumer Credit Act 1974, the framework that governs most non-mortgage consumer lending in the UK. The consultation opened on 9 December 2022 for 14 weeks and closes at 11:59pm on 17 March 2023¹. Responses should be sent to consumercreditact@hmtreasury.gov.uk and will be shared with the Financial Conduct Authority (FCA) unless otherwise requested¹.

The government set out its intention to reform the regime on 16 June 2022, with the ambition of moving the majority of the Act from statute to FCA rules¹. The document describes itself as "the first step of that reform", which the government expects to take a number of years¹. It says the existing landscape, which includes the CCA and FCA rules, has become too complex and contains overlap that restricts outcomes for consumers and business¹.

The Treasury's case for change rests on the age and complexity of the legislation. The CCA has regulated consumer credit for fifty years, and since 1974 over thirty pieces of subordinate legislation have amended it¹. In 2004 it was amended to allow electronic conclusion of agreements, and in April 2008 the £25,000 limit was removed for all regulated credit and consumer hire agreements¹. In April 2014 the Office of Fair Trading was closed and its consumer credit responsibilities transferred to the FCA¹. A statutory duty was then placed on the FCA to review the remaining CCA provisions and report to HM Treasury by 1 April 2019¹.

The market the Act covers is large. The UK's £200 billion non-mortgage consumer lending market is one of the largest consumer-facing sectors in UK financial services, and around 36,000 firms are authorised by the FCA with credit permissions, the bulk of which are credit brokers¹. About 6,000 individual firms have permissions to enter into consumer credit or consumer hire agreements¹.

The consultation sets out objectives and principles for reform and categorises CCA provisions, asking how they might be replicated in FCA rules¹. It also asks how reform can increase access to credit and financial inclusion, and how the market can become fairer and take account of inequality¹. The government acknowledges that some sections of the CCA are specific to Scotland and some to Northern Ireland¹.

Why it matters for households

The CCA sets statutory rights and protections for borrowers that sit alongside FCA rules, covering credit agreements and consumer hire agreements, as well as ancillary services such as credit broking, debt collection, debt counselling and debt adjusting¹. Moving provisions into FCA rules would change where those protections sit and how they can be amended, since FCA rules are made by the regulator rather than set in primary legislation¹.

The consultation also covers gaps in the current perimeter. Many Buy-Now Pay-Later products are not regulated under the CCA, so lenders do not need to be authorised by the FCA¹. Lending or hire for over £25,000 for business purposes is among the areas addressed¹. The FCA's Consumer Duty, under which firms must act to deliver good outcomes for retail customers, comes into force in July 2023 for new and existing products and services and July 2024 for closed products and services¹.

What happens next

Following the consultation, the government will develop more detailed policy proposals, which it expects to put to stakeholders through a second stage consultation¹. 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, to be brought forward when parliamentary time allows¹.