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HM Treasury – Consultation to Reform the Consumer Credit Act 1974

Friday 5 January 2024

HM Treasury has published a consultation paper to instigate the process of reforming the Consumer Credit Act 1974. HMT is at an early stage of the process of reforming and modernising the Consumer Credit Act (CCA), which will likely take several years due to the complexity of this reform. This initial consultation aims to discuss the types of change planned for the CCA and the principles that should guide the design of the new Act.

This consultation will be directly relevant to credit unions that have or plan to obtain consumer credit permission. Whilst credit union borrower-lender agreements have an exemption from consumer credit rules, they still require consumer credit permission for regulated consumer credit activity (such as borrower-lender-supplier agreements, credit cards, hire purchase agreements, conditional sale agreements, debt counselling and other ancillary credit services). The CCA also sets the standard of conduct that the public is likely to expect from creditors, and so any future changes will have a wider influence on the expectations of the credit union sector from borrowers.

Plans and Objectives for Reform

The key reason behind the Government’s interest in reform is that the existing regulatory landscape of the CCA and FCA CONC rules have become too complex for businesses and to effectively provide protection for individuals.

HMT offer their overall objectives for reform as to modernise and streamline consumer credit regulation, to benefit both consumers and businesses. It aims to create a simpler and more focused regulatory regime, and changing consumer credit regulation so it matches the approach of other regulatory areas. The intended outcomes for this are for consumer credit firms to both make cost savings and have more freedom to innovate.

HMT sets the following 5 principles that will underpin reform of the CCA:

  1. Proportionate – To balance consumer protection with a proportionate burden on businesses
  2. Aligned – To align reform with the rest of financial services regulation
  3. Forward-looking – To ensure adaptability to allow regulatory change that meets future needs of customers and businesses
  4. Deliverable – To ensure that reform is achievable and deliverable for both regulators and businesses
  5. Simplified – To create a regulatory regime that will simplify and modernise ambiguous technical terms of the current CCA

Some of the key areas of change planned in reform that may be of interest to credit unions offering consumer credit services are as follows:

  • Definitions within the CCA – reform will consider whether certain key terms of the CCA should be defined or have their existing definitions clarified.
  • Information Requirements – The Government intends to move requirements to provide certain information before they borrow from the CCA to FCA rules. These requirements may change and evolve as they are transferred to FCA regulation.
  • Rights and Protections – HMT intends to move some consumer protections in the CCA to FCA regulation, however it would have to amend the FCA’s rulemaking powers under the Financial Services and Markets Act
  • Financial inclusion – It is intended that reform will improve financial inclusion by making amendments that improve access to credit for a wide range of individuals, as well as improving treatment of financial vulnerable borrowers, and amending the CCA to better accommodate Sharia compliant credit agreements.

Feedback

Overall, ABCUL supports the Treasury’s motivations and aims for reform of the CCA, with the credit union sector standing to benefit from a simplified regulatory regime for consumer credit

ABCUL will be responding to this consultation and would welcome any feedback you have on the Treasury’s proposals. We would welcome any feedback to be sent to policy@abcul.org by close of business Tuesday 14th March.

Some questions you may wish to consider are:

  • Do you agree with Treasury’s aims and principles for reform of the CCA?
  • Are there any potential amendments to the CCA that would be beneficial to your credit union?
  • Are there any terms in the CCA that you think need clarifying or defining?
  • Should consumer protection provision be moved to FCA regulation? Should there be any change to consumer protections currently provided by the CCA?
  • Should information requirements be moved to FCA rules? Do information requirements still need to be prescribed to the same extent with the introduction of the FCA’s Consumer Duty?
  • Are there any amendments to the CCA that could support better financial inclusion?