End for ‘draconian’ sanctions as UK Treasury looks to revamp Consumer Credit Act

HM Treasury has revealed plans (142-pages/871KB PDF) to reform the 50-year-old Consumer Credit Act (CCA), in the wake of a major consultation process last year.

Under the proposals, sanctions under the CCA for unenforceability without a court order, unenforceability until breaches are remedied and disentitlement to interest will be repealed, with the protections of other legislation and the Financial Conduct Authority’s rules, powers and principles now deemed to have superseded or provided more proportionate sanctions.

Many of the information disclosure requirements will be repealed, with the FCA’s rules taking their place for information provided to consumers during the pre and post contract periods, along with at other

points in a contract’s lifecycle, such as arrears and default

Some key parts of the current rules will be retained in the CCA, including criminal offences for canvassing off-trade premises and circulars to minors, as they are seen as a major deterrent against harmful practices, along with rules around consumer credit agreements, such as what happens if a debtor dies and pawnbroking and definitions, such as the  meaning of credit will be retained.

Jo Owens, a retail financial services regulation expert with Pinsent Masons, said the reforms would help to bring regulation of the consumer credit industry into alignment with modern regulatory approaches.

"In arriving at its policy position in this long-awaited key step on the road to CCA reform, Government assessed a range of viewpoints and feedback from across industry, consumer groups and advisors, as shown in its detailed summary of responses to the consultation,” she explained.

“While, perhaps not surprisingly, no one group may feel that all their views have been accommodated, a blended package of reforms has been announced, for which the key drivers are to modernise the regime whilst balancing this with ensuring consumer protection.

“While retaining all the criminal offences consulted on for their deterrent effect, the proposals also aim to liberate lenders to innovate in the market, by removing some of the more draconian sanctions in the CCA, notably for information disclosure breaches.”

The repeal of the sanctions of unenforceability and disentitlement to interest comes despite consumer groups raising concerns that doing so would weaken deterrence and consumer protections, with the government responding in its review there was not enough evidence to support that sanctions provide more protection than the FCA’s regime and the possibility of complaining to the Financial Ombudsman Service.

Fears that changes to disclosure requirements would free up some professionals not covered by the FCA were also raised, with the Treasury saying it expected these categories of people to abide by their own professional standards bodies’ requirements around disclosure in place of the CCA’s legislative requirements.

Although in its consultation the government envisaged a further phase of consultation in respect of the remaining provisions of the CCA, it has now decided it is able to make changes to some of those areas without consulting further.

A range of provisions will either be repealed and fall away - with some parts remaining in the CCA, or being recast in the FCA’s rules. These include provisions on withdrawal and cancellation rights, termination of agreements, credit tokens, and liabilities for misusing credit facilities.

But some areas will also remain if they cannot be recast  due to a lack of appropriate powers of the regulator because they create third party rights and obligations, or are provisions with technical challenges and case law underpinning them  which will attract further scrutiny and more detailed work by Government in future– including antecedent negotiations, connected lender liability (under section 75 and 75A of the CCA) and regulations around unfair relationships.

Alexandra Byard, a retail financial services regulation expert, said the nature of the reforms – and the areas still unresolved – may not satisfy everyone.

“Although moving the conduct regime for consumer credit into the FCA's remit brings it more into line with the regulatory approach for the sector, other requirements are to remain within the CCA,” she said.

 ”Firms and consumers will still have to navigate this complexity in the structure of the regime itself.

“Those who hoped for more comprehensive reform of the overall framework and requirements for lenders, or for resolution of issues relating to what the Government describes as 'complex’ provisions in the CCA may be disappointed.

“The Treasury has also confirmed that the Phase 2 consultation is not needed for Government to make changes in some areas. Even so, the policy statement mentions more detailed work on the complex provisions is required – but for now these are parked, unchanged.”

The FCA said, responding to the proposals, that reform of the CCA was “an important step towards a more flexible regime” supporting both competition and innovation while maintaining consumer protection – both today and in the future.

“The proposals set out a framework that places greater emphasis on FCA rules and guidance rather than prescriptive requirements set out in legislation,” it added.

“We intend to consult on the key elements of the consumer credit framework previously set out in legislation, where we have the powers to do so, considering the whole consumer credit process. Our approach will be underpinned by the Consumer Duty – which sets our expectations for firms to deliver good outcomes for consumers.”