Treasury consults on CCA reform

Treasury is consulting on reform of the Consumer Credit Act. This is the first consultation following its announcement in June that it would undertake reform, and seeks views on the strategic direction of the reform, and also seeks input on how the regulatory environment can best ensure optimal performance of regulation around customer communications, consumer protection and sanctions for non-compliance.

Over recent years, many parts of the 1974 Act have been transferred into the FSMA/FCA regulatory framework, but key requirements remain in the CCA. 36,000 firms have consumer credit permissions. Around 6,000 firms have permission to enter into consumer credit or consumer hire agreements, and around 30,000 firms are credit brokers.

Since FCA took over consumer credit regulation, various reviews have taken place, most pertinently an FCA review looking at which of the remaining CCA provisions could be repealed without adverse impact on consumers and which should be replaced by appropriate FCA regulation.  But it did not consider matters such as the effects of the upcoming Consumer Duty, the effects of Brexit or changes to FCA’s rule making powers. The review had concluded that in principle most of the remaining CCA information requirements could be replaced by FCA rules, that a small number of rights and protections could be moved and that there might be scope to replicate CCA sanctions in FCA rules. However, the pandemic interrupted progress following that report, and it was overtaken by the FRF review and now the FSM Bill, as well as the Consumer Duty. Treasury comments that the Consumer Duty is not designed to replicate the effect of CCA protections, although it does mean that the context in which those protections were written has changed.  Also, the opportunities from Brexit mean that some EU mandated formats of information can be modernised and updated. Additionally, there is now the policy decision to bring BNPL under CCA auspices.

The consultation sets out the underlying reform objectives of the Government, and stresses the Government envisages provisions being recast rather than replicated. It will work on the principles of:

  • proportionate
  • aligned
  • forward-looking
  • deliverable and
  • simplified.

Reforms will also take into account the need to remove barriers that may otherwise prevent lenders from being able to offer financing for renewable energy solutions, and the consultation seeks views on how it can best do this.

The consultation seeks views on several categories of CCA provision, specifically:

  • definitions – what should be amended, and should any term be defined that is not currently defined?;
  • scope – in particular, should the business lending perimeter be reconsidered, given that it is hard to get a business loan for under £25,000?;
  • information requirements – is it appropriate to move these to FCA rules, and how important is it to maintain the strict prescribed wordings and formats? How does the Consumer Duty and the increasing use of mobile devices affect this?;
  • rights and protections – whether any of the key protections in the CCA, including s75, are adequately replicated elsewhere, and what are the risks and benefits of moving those not replicated elsewhere to FCA rules? The consultation also asks specific questions about key protections including the unfair relationship provisions – asking whether they are still necessary given the FSMA and FOS regimes;
  • sanctions – and whether FCA should be given powers that would enable it to apply unenforceability to breaches of its rules in the same way as it applies under the CCA, and what sanctions would be proportionate, and also how valuable the CCA provisions that give rise to a criminal offence are;
  • consumer hire – in particularly whether the standards for consumer hire agreements should be increased so they are comparable to those for consumer credit; and
  • small agreements – whether section 17 is still valuable, given the decision to disapply it from BNPL regulation, and what would be the impact of it no longer applying.

Further questions ask for views on how reform should take into account financial literacy and inclusion, and cater for Islamic finance products and providers.

Consultation closes on 17 March 2023.

Emma Radmore