The Financial Ombudsman Service (FOS) has published its response to HM Treasury's consultation on reforming the Consumer Credit Act 1974 (CCA), dated 17 March 20231. The service, which was set up by Parliament under the Financial Services and Markets Act 2000 to resolve individual complaints between financial businesses and their customers, says it has been able to resolve complaints about consumer credit since 20071.
FOS says it "broadly agree[s] with the five proposed principles that will underpin the reform of consumer credit, that it should be proportionate, aligned, forward-looking, deliverable and simplified"1. It suggests adding a sixth principle of "effective", arguing that protections for consumers should be fashioned to work as intended1.
On the government's net zero targets, FOS cautions against removing important consumer protections in relation to renewable energy solutions, saying this "might leave some consumers vulnerable"1. It cites complaints about the Green Deal, the government's flagship initiative between 2011 and 2015 to improve the energy efficiency of buildings in Great Britain by removing the up-front cost of such measures, where consumers were not aware they were taking out a loan and thought the measures were free1. It also reports evidence of consumers being misled in the sale of solar panel finance, with monthly loan repayments ending up much higher than the income received from the panels1.
The response sets out several other positions:
| Area | FOS position |
|---|---|
| Business lending limit | The £25,000 upper limit for business lending should be reviewed and raised to represent a reasonable upper limit in today's market1 |
| Section 75 | Anyone issued with a credit card, or similar means of drawing down under a restricted-use credit agreement, should be given the same s.75 rights as the debtor1 |
| Unfair relationship provisions | Neither the FSMA regime nor FOS makes the unfair relationship provisions in ss.140A-C CCA unnecessary; they should remain1 |
| Voluntary termination | A suitable extension of the voluntary termination regime to consumer hire agreements should be considered1 |
| Consumer Duty | The forthcoming FCA Consumer Duty will complement, but is no substitute for, the requirements of the CCA1 |
| Consumer hire conduct | Standards of conduct for consumer hire agreements should be looked at so they become comparable to those for consumer credit agreements1 |
FOS reports it currently has almost 17,000 open cases relating to consumer credit, and has resolved almost 40,000 consumer credit complaints to date during the financial year 2022/23, about one in five complaints resolved across all areas1. The uphold rate for consumer credit complaints in 2022/23 to date is 41%, or two in five, slightly higher than its average across all products1.
"We would caution against removing important consumer protections in relation to renewable energy solutions which might leave some consumers vulnerable."
Why it matters for households
The CCA sets the rules for credit agreements, hire purchase and consumer hire, and gives borrowers rights over what they are told, how they reach agreement, when and how they can terminate a credit agreement, and whether they have rights against suppliers of goods and services bought using credit1. FOS says the CCA, its surrounding regulations, and FCA rules and guidance are all key resources for its ombudsmen when deciding complaints1.
The consultation is a forward-looking discussion about the future shape and contents of legislation, and FOS says its views do not affect how its ombudsmen approach or decide cases under current consumer credit legislation, which they will continue to take into account for so long as it applies1. Any changes to the CCA would therefore affect borrowers only once new legislation takes effect, not the handling of complaints now.
FOS's comments on section 75 concern purchases made with credit cards and point of sale loans, where credit-card providers and lenders under other restricted-use credit agreements can be liable to the debtor for the misrepresentations and breaches of contract of the business that supplies the goods or services financed by the credit agreement1. FOS notes that when a second credit card has been issued to a person, such as a spouse, who is not the "debtor", that person lacks s.75 protection1. It also notes that s.75 does not apply so far as a claim relates to "any single item to which the supplier has attached a cash price not exceeding £100 or more than £30,000"1.
On voluntary termination, FOS says it gives people an escape route after they have paid half the instalments, mitigating hardship1. It also says it is not part of its remit to penalise firms or deter breaches, and its powers to award redress are limited to compensating the complainant's damage1.
What happens next
HM Treasury's consultation is a review of the CCA; FOS says it has not responded to every question asked1. No date for the government's response or for any legislation has been reported.
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