Modernisation of the Consumer Credit Act: what changes can be expected?

The consumer credit regime is a complex framework. Several layers of primary and secondary legislation, including the Consumer Credit Act 1974 (CCA) and the FCA Handbook, make up the legal and regulatory framework for the consumer credit market. Changes made over the years since the CCA was passed almost 50 years ago have not materially simplified matters; the consumer credit framework needs a wholesale review to simplify the rules and legislation and ensure they are aligned with the changing consumer credit space. The UK government's announcement that it will be modernising the CCA and delivering what the Treasury commits to being an "ambitious long term reform" is, therefore, welcome news.

The reforms will build on the recommendations of the FCA's 2019 report on the retained provisions of the CCA and the Woolard Review.

"Much of the [CCA]", the government's press release tells us, will be moved from statute to sit under the FCA. This approach to regulation is to be welcomed in the context of a market which is constantly evolving - legislative change takes time and the FCA is better able to respond quickly to emerging developments in the consumer credit space. The move from statute to Handbook is unlikely to be a simple 'lift and shift' exercise but rather an opportunity to review the CCA provisions and consider what information consumers need and when and how it should be given to them.

What changes might be expected?

The government's announcement gives little detail of the proposed reforms, however the Woolard Review recommended a more outcomes-focused approach to consumer credit regulation, and comments in the FCA's report indicate that some areas of reform might include:

Rights and protections

• a review of and possible tinkering with lenders' liability under s.75 (for example the cash value limits, which were last updated almost 40 years ago, may be increased) although it seems clear that this strong consumer protection measure will remain.
• an alignment of the withdrawal and cancellation regimes under s.66A and s.67 respectively to simplify and clarify firms' obligations.
• because of the overlap of some of the provisions around credit tokens and unauthorised payments under s.66 and ss.83-84 with the Payment Services Regulations 2017 (PSRs), a potential repeal and replacement by the PSRs where the credit token is a payment instrument and the credit agreement involves the provision of payment services under Part 7 of the PSRs. This would create a more unified regime, which is to be welcomed.
• the possible replacement of the provisions in s.155, which deal with refunds of credit brokerage fees, by FCA rules, which would pull the provisions across so they sit with the existing Consumer Credit Sourcebook (CONC) rules and guidance on credit broker fees.
• the repeal of the provisions around termination of agreements in s.101 and s.103 and their replacement by FCA rules.

Information requirements

• the possible move of certain of the CCA information requirements to the FCA Handbook but only where this would not lead to undue fragmentation of the regulatory regime (certain CCA provisions which could be transferred in principle may be kept in statute because of related provisions which are not capable of repeal and replication in FCA rules) and where the appropriate degree of consumer protection is preserved. Where information requirements are moved to the Handbook this could involve a change to the CCA to apply existing CCA sanctions to breaches of specified FCA rules (or FSMA could be amended to give the FCA the power to apply these sanctions to such breaches).
• some alignment of the requirements of two different sets of secondary legislation for pre-contract disclosures and the form and content of agreements. A lower degree of prescription and additional flexibility around wording of content are likely.
• a change in the level of prescription and tone of language used in post-contract information, such as arrears and default notices. Whether or not changes will be made to allow electronic delivery of enforcement, default and termination notices, which the CCA requires to be sent using paper form, remains to be seen.

Sanctions

• changes to the scope of application of the disentitlement sanctions (in relation to annual statements for fixed-sum credit agreements and arrears notices) where the customer has no liability to pay interest or default sums in respect of the period of non-compliance. These changes may focus more on the types of breach which are most likely to cause harm to consumers.

What changes are less likely?

Unfair relationships provisions are likely to remain largely untouched. They are one of the more recent changes to the CCA and were introduced as a deliberate government policy decision to give the courts a wide discretion to consider unfairness on a case-by-case basis.

Changes in principle to those CCA provisions which give rise to the automatic sanction of unenforceability without a court order (for example where an agreement is improperly executed because it fails to comply with form and content requirements) are not expected. The FCA's view is that this sanction ensures self-policing and appropriate firm conduct.

What next?

A consultation on the direction of reform is to be published by the end of the year.

It will be interesting to see what the transfer of "much of the [CCA]" to FCA Handbook will look like in practice. Not only because many provisions of the CCA, particularly rights and protections provided under the CCA, were left in statute when responsibility for consumer credit regulation transferred to the FCA in 2014, but also because the reforms will be at least as challenging as the credit regime is complex.

Firms, trade bodies and consumer groups will be sharply focused on the detail of the proposed reforms to CCA provisions which are to remain in statute and of the new FCA Handbook rules, once this become available.