In the Government's recently published response to its consultation on its approach to reforming the Consumer Credit Act 1974 (CCA), it has committed again to moving forward with an ambitious overhaul of the CCA. The Government still plans to develop proposals that move the majority of the CCA into the FSMA model. It is promising to see that in the next stages of the policy development the Government has committed to ensuring that its approach to reform is informed by data and a strong empirical evidence base. It is keen to understand from stakeholders what data they may be able to share to inform such analysis.
In this briefing we set out the Government's planned next steps and our key takeaways from the responses to the Government's proposals.
Key takeaway points and feedback covered in the HMT's response
Principles
- HMT set five sensible principles in its consultation against which to test its reform proposals: proportionate consumer protection vs business burden; aligned with broader regulatory framework; forward looking making it adaptable to future changes; deliverable with adequate implementation time; and simplifies and modernises.
- Given the broadly positive stakeholder feedback, the Government intends to continue to use these sensible principles to guide its approach to reform.
- For the deliverability of reform, the Government is seeking further views from stakeholders on whether a phased approach to reform is desirable and deliverable. This may involve amending content requirements for post contractual notices as a priority to support the customer understanding outcome. There has been concern about the impact of existing requirements on consumer mental health (see more here).
Scope
- Business lending - HMT consulted on changing the business lending scope of the CCA to extend protections to more businesses. The feedback on this was mixed with the industry supporting a reduction of scope or creating a separate set of requirements and protections for small business lending in the FCA Handbook to provide some flexibility. This question is also now being considered as part of the inquiry into the financing of small and medium-sized enterprises (detail can be found here).
- Consumer hire - Given the increased prevalence of this product, especially in the motor industry, in its consultation HMT called out the need to potentially create a regime for certain types of hire arrangements that more closely align it to credit regulation. Stakeholders held different views about whether the risk to consumers from hire services is equivalent to that from credit products.
- The Government will continue to consider how its regulatory approach can support the provision of finance for renewable energy solutions and contribute to its net zero goals.
Information requirements
- The majority of respondents were supportive of moving information requirements into FCA rules.
- The response provides that a reformed regime could take advantage of the capacity of modern communication channels to engage people. For example, through videos and graphics. These could potentially replace the current prescribed form requirements for certain documents.
- The response also talks of widespread agreement that the presentation of numerical information relating to consumer credit products can be improved. Such as pictorially, by providing specific cash amounts rather than percentages.
Rights and protections
- Stakeholders are of the view that at least some provisions should remain in legislation (rather than being moved into FCA handbook rules), for example section 75 protections. It was also suggested that certain protections such as rights under sections 75 and 140A could be modernised or re-drafted to provide clarity and improve their operability.
Sanctions
- Many industry stakeholders argued that 'unenforceability' should be removed and not replicated in FCA rules, believing that the FCA’s enforcement powers and other routes to redress provide adequate sanction.
- Some consumer groups and charities have said that "there could be a more proportionate application of sanctions". However most argued strongly in favour of retaining a form of automatic sanctions either in FCA rules or legislation.
What does this reform mean for businesses?
The government has committed to an ambitious overhaul of the existing CCA, this will have numerous implications for businesses. To provide a couple of examples:
- Hopefully reform will enable firms to improve customer experience in digital lending journeys.
- The existing information requirements can result in information overload which can deter customers from engaging with communications. In addition, the way that creditors communicate with people in financial difficulty is extensively regulated by the CCA. While these requirements are an important part of the consumer protection framework, they surround messaging about help with a prescribed and legalistic language that people in financial difficulty can find off-putting and hard to understand. The hope is that reform will solve these sorts of issues.
Next Steps
The consultation is only the first stage in the reform process and the Government is planning to undertake further stakeholder engagement to produce more detailed proposals, with a view to publishing a second stage consultation in 2024. This will include discussions on possible timeline for implementation of the changes. The Government has stated that it is open to exploring whether a phased approach to implementation may be appropriate and is keen to hear representations from stakeholders on the desirability of such an approach.
It has confirmed that it will hold a series of bilateral meetings with industry and roundtables ahead of publishing its next consultation.
You can read our previous article covering Consumer Credit Act reform here.
Please get in touch with one of the authors of this article to talk about how this reform could impact your business.
