We summarise the proposed changes to the Consumer Credit Act and consider whether the Government goes far enough in bringing about wholesale change to a regime that is widely accepted as being complicated, difficult to navigate and fraught with issues for those that provide credit or hire services.
The Consumer Credit Act (CCA) has been around for almost 40 years. Whilst there have been many changes along the way, it persists, but in a very different regulatory environment to the one it was borne into. The Government has now made a commitment to update it and hopefully, bring it in line with the world in which credit providers operate today.
In December 2022, a Consultation Paper on reforming the CCA was published and on 10 July 2023, the Government published a Response to the Consultation. Here, we summarise the proposed changes and consider whether the Government goes far enough in bringing about wholesale change to the regime.
The Government’s intention is to align consumer credit regulation with the rest of the regulatory framework in the financial services sector. The proposed approach appears to be a step in the right direction for bringing about this reform.
The initial Consultation set out five basic principles that underpin the changes:
Overall, the Treasury has seen widespread support for the proposed changes set out in the Consultation. The response document confirms that, considering this, “the Government plans to move forward with an ambitious overhaul of the CCA”. The driver for change appears to be rooted in a lack of innovation under the current regime and the inability to adapt, given the current rate of technological change that the market is experiencing.
There is an acknowledgment that some areas of the regime may still require a legislative based approach, but many of the legislative provisions can be moved into the FCA Handbook, which we hope will lead to a more joined up approach. Keep an eye out for our upcoming article on what the changes may look like.
The FCA has welcomed the consultation and broadly agrees with the Government’s plans. It acknowledges the advantages of moving certain CCA provisions into the FCA Handbook to make it easier for businesses and consumers to navigate the law in a simplified and more flexible manner.
In its earlier review of retained provisions of the CCA, published in 2019, the FCA was cautious about using its powers as a substitute for the CCA, especially in relation to sanctions, which it considers to be an important consumer protection measure.
As an example, it notes that the option for consumers to bring an action for damages under s. 138D FSMA is reserved for “customers with the financial capacity to pursue potentially costly litigation where significant losses have occurred”, and thus we can infer that this is unlikely to be seen as a good substitute for the current unenforceability sanction (where CCA agreements are not enforceable without a court order, if they do not conform to certain legislative requirements).
It recognises this as an important self-policing element of the CCA, incentivizing businesses to follow the form and content requirements set out in the legislation. It notes replacing the current sanctions is likely to have an adverse effect on consumer protection and advocates for some combination of current CCA provisions, FCA powers and the existing private right of action under s, 138D FSMA.
We await further commentary from the FCA on whether its position has changed following the consultation, as the reform process continues.
For most credit providers, the changes will be welcome and long overdue. Having two parallel regimes under the CCA and FSMA has, for a long time, caused confusion for consumers and lenders alike.
The current legislation is arguably not fit for purpose in today’s market and the need for change is undeniable. What lenders and consumers need is a single regime that clearly demonstrates an understanding of today’s credit market, with the flexibility to adapt and change as time and technology move on. Whether this need will be delivered remains to be seen.
The Response broadly affirms the position set out in the consultation and demonstrates the appetite for full scale reform. However, this is not a quick fix.
The Government has confirmed there is likely to be a second consultation in 2024, following a process of policy development to build on the current proposals, assisted and supported by different stakeholders. It seems a new regime is still some way off and firms will need to wait for definitive information on what the reform will look like and timescales for implementation. Watch this space.
Our Financial Services Regulation team here at Capital advise on all aspects of credit and hire regulation and can assist you and your business in navigating this complex area. If you are a start-up, or scaling business, looking for an efficient way to access the commercial legal advice you need, quickly and without fuss, we can help. Get in touch with our Financial Services Regulation experts.