Reform of the Consumer Credit Act: consultation

On July 11, 2023, the HM Treasury released the response to its consultation on reforming the Consumer Credit Act 1974 (CCA), which was published in December 2022 as part of the Edinburgh Reforms (please see EventID #18983 in this context). In this response paper, the Treasury outlines the feedback it has received to its consultation and describes its general way forward in this matter.
#### Background
On December 9, 2022, the Treasury launched a consultation on possible reforms to the Act to „facilitate innovation in the credit sector and increase accessibility of credit products“, to make the Act suitable for the digital age, and to further increase consumer protection where ever necessary. In this context, the Treasury sought feedback on some high level issues surrounding the reform, such as the principles that should underpin the reform, the promotion of carbon neutrality in the Act (e.g. via specific lending practices relief for green loans), or the alignment of the act with other regulations, to name a few.
One other key aspect of the consultation was to streamline the Act so as to only include issues that deserve national legislation. In this context, the Treasury proposed the removal of „not-needed“ rules – such as rules in relation to disclosure and notification obligations in connection with loans or other credit arrangements – from the Act to the Handbook of the FCA (Financial Conduct Authority).
#### Summary of key responses
Overall, stakeholders were highly supportive of the CCA reform, but there were diverse opinions on specific aspects of the CCA changes, e.g. concerning sustainable consumer choices.
Specifically, a large majority of respondents supported the government’s intention to reform the CCA due to its failure to keep pace with evolving consumer behavior and new products. Many stakeholders welcomed the consideration of how consumer credit can support net zero objectives, but there were differing views on incentivizing green products, with some cautioning against compromising consumer protection. Future-proofing the regulatory regime was also deemed essential among respondents, but caution was urged against simplifying the Act too much at the expense of consumer protection.
The regulation of small and medium enterprise (SME) business lending was deemed suitable by respondents with industry stakeholders advocating for reduced scope and separate requirements for SMEs. As far as inclusion and consumer protection is concerned, several respondents expressed concerns about the strict and prescriptive information requirements in the CCA. They believed that Notices of Sums in Arrears and Default Notices can be overwhelming and intimidating for customers, discouraging them from seeking help or communicating with their lenders. Likewise, these notification requirements are burdensome for institutions with felt little effects for customers.
As far as the implementation timeline is concerned, many respondents noted that the reform of the CCA would be complex and time-consuming. Therefore, many proposed a phased approach, starting with information requirements, while others argued against it, citing higher transition costs for businesses in connection with a staged approach.
#### Way forward
Given the overwhelming support for the proposed reform, the Treasury plans to proceed as proposed, with a comprehensive overhaul of the Act.
The Treasury thereby intends to shift much of the CCA into the Financial Services and Markets Act 2000 (FSMA). This process will involve repealing substantial portions of the CCA and recasting them in the FCA Handbook. However, the government acknowledges that certain aspects of consumer credit regulation may still require legislative-based provisions and will remain in the Act.
Due to the scale and complexity of the reform, it is expected to take several years before it will be fully implemented. The process will likely involve primary legislation, a detailed rulemaking procedure conducted by the FCA, and a Cost Benefit Analysis. Furthermore, the government will establish transitional periods to allow the industry to prepare and adjust to the new regulations.
The next step in the reform process is to undertake policy development to create more detailed proposals. The government plans to publish a second-stage consultation in 2024 to gather feedback from stakeholders. In the meantime, it will engage further with stakeholders through bilateral meetings and roundtable discussions to shape the overall design of the new consumer credit regulation.
Regarding implementation timelines, the government currently cannot provide specific dates due to the early stage of the reform process. However, it commits to being open and transparent with stakeholders and will provide more details in due course. The government is also open to considering a phased approach to implementation, depending on the circumstances and needs of the stakeholders involved.