Reform of the Consumer Credit Act 1974 (CCA) has begun its long legislative journey through the House of Commons with a recently-concluded industry consultation. Gemma Murphy Punzo, a Senior Associate for Gateley Legal, has highlighted six aspects from the consultation that may lay the groundwork for reform.
Reform of the Consumer Credit Act 1974 (CCA) has been talked about among industry and consumer groups for many years. Everyone agreed that the existing regime is outdated, complex and restrictive for new entrants. These issues came into even sharper relief during the COVID-19 pandemic. Add to that the significant changes which have taken place in consumer habits coupled with increased use of electronic delivery channels and it became obvious that the current rules were no longer fit for purpose. In short, the CCA is so last-century.
The UK’s consumer credit regime was subject to enforced change in 2014 when the responsibility for regulation passed from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA). Large sections of the CCA were repealed and replaced by a principles-based regime set out in the FCA Handbook of Rules and Guidance. The piecemeal basis of these reforms created an uneven framework which the Government is now looking to refresh.
Consumer Credit Act
The Government’s announcement in June of last year that they intend to reform the CCA came as a welcome relief to many. However, you will need to keep the champagne on ice for a while longer. This won’t be a short or simple process and the Government will need to consider a wide range of often competing and conflicting views.
This lengthy process has launched with an initial consultation released by the Government in December 2022. This consultation adopts a very high-level perspective on the intended approach and direction of reform. The specifics of reform will begin to take shape further down the line.
Here are six key takeaways:
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At the forefront of the Government’s approach is to ensure that any reform to the CCA removes barriers that may prevent lenders from offering finance for renewable energy solutions (including electric vehicles). The specifics of how this policy will take shape in the reforms are currently unknown.
One of the primary goals of the Government’s CCA reform is to transfer the majority of the regulation from statute to FCA rules. The Government believes that this will help modernise and streamline regulation for the benefit of consumers and businesses. This transfer will provide an opportunity to review and update some of the pre-existing CCA rules, including modernising any archaic language.
In particular, the Government has asked for views on whether any existing definitions or concepts in the CCA need updating or clarification, as well as the need for defining any new concepts. One of the prominent examples of this is the definition of the motor vehicle as being ‘mechanically propelled’ which needs to be addressed in relation to electric vehicles. Reform is a major task and how the Government intends to consolidate more than 80 different sets of regulations, orders and laws is still to be seen.
The Government is seeking views on whether the existing business lending scope needs to be changed. Currently, sole traders and small partnerships are caught by regulation if the amount of the loan or rental payments is below £25,000. As a result, lending to unincorporated businesses under £25,000 is often avoided by funders.
Aligning with its wider project for reform, the Government intends to replace most of the CCA’s information requirements with FCA rules. This shift should make consumer credit regulation more dynamic and future-proof, allowing for easier amendment of these requirements in the future.
The current rules on the form and content of pre-contractual and post-contractual information are often prescribed and very rigid in approach. The Government is also seeking views on whether lenders should be given more flexibility in this area and on how to balance the associated risks when it comes to consumer detriment.
The CCA currently includes strict sanctions for non-compliance, in some cases including unenforceability and criminal offences. The Government wants to use this opportunity to review the consumer credit sanctions regime and move most of the sanction powers into the hands of the FCA.
The Government is focusing on three main areas regarding sanctions: enabling unenforceability for breaches of FCA rules, revisiting current sanctions to ensure they are proportional to the consumer detriment caused and deciding whether it is appropriate to retain criminal offences for certain breaches of the CCA.
The CCA currently treats consumer credit and consumer hire quite differently, particularly in terms of consumer rights and protections: consumer hire is subject to lower standards under both the CCA and FCA rules.
The Government is seeking views on whether the standards of conduct for consumer hire agreements should be increased to align them with those for consumer credit. Consumer hire is currently a popular finance technique for small businesses. So, it will be interesting to see how the Government approaches the product for genuine consumer transactions (such as personal contract hire) as opposed to hire agreements entered into with businesses.
With the deadline for responses having passed on 17 March 2023, we await the feedback which has been given to the consultation. It will be interesting to see how the Government intends to take on board the submissions made. Whilst you can’t please all of the people all of the time, it will be in everyone’s interest to see a revised regime that is simpler to understand, protects consumer interests, and is future-proofed against the rapid changes that are taking place in the credit sector.
No mean task!