The UK government has committed to the modernisation of its consumer credit regime, and plans to give the Financial Conduct Authority (FCA) more control over the rules that apply to the consumer credit market.
HM Treasury announced it would publish a consultation on the planned reforms to the Consumer Credit Act (CCA) by the end of 2022. The announcement follows previous recommendations to overhaul the legislation governing credit card purchases and consumer loans, but any changes will take place over an extended timeframe.
Financial services regulation experts welcomed the announcement.
“Consumer credit laws are a mix of both the UK’s original consumer credit regime and a number of EU directives giving rise to a complex regulatory environment that often baffles firms and consumers alike,” said Andrew Barber of Pinsent Masons.
“As it looks to modernise the UK’s consumer credit laws the government must embrace the opportunity for significant regulatory reform that removes the complexity that has arisen from implementing EU regimes and decades of changes to the UK’s laws. Any changes must have a focus on both the regulatory perimeter and the customer experience,” he said.
The CCA came into force in 1974. The government said it was “highly prescriptive and increasingly cumbersome and inflexible”, leading to consumer confusion and costs for business.
The government said it would move much of the act from statute to sit under FCA rules. It said this would enable the regulator to quickly respond to emerging developments in the consumer credit market, rather than having to amend existing legislation.
The FCA took over regulation of the consumer credit market in 2014 and in 2019 reviewed the retained provisions of the CCA, recommending that some of the act’s provisions could be moved into FCA rules.
A separate review by Christopher Woolard into the unsecured credit market in 2021 recommended a more outcomes-focused and holistic approach to regulating consumer credit. The government said it would take both the retained provisions review and the Woolard report into account when developing the reformed regime.
Financial services expert Rachael Preston of Pinsent Masons said: “For many years the CCA has stifled competition and innovation in the retail lending space, with many firms struggling to operationalise and comply with the technical legal requirements it imposes. The proposed reformation will therefore be a welcome change for incumbent and emerging firms alike, affording them the flexibility to act swiftly and to deliver products and services that serve the needs of our modern society.”
“Moving regulation of the consumer credit regime from the CCA to the FCA will come with its challenges, but it is ultimately a good thing for market participants and consumers. The complex and self-policing nature of the CCA has resulted in varying degrees of compliance amongst firms, as well as inconsistent outcomes for consumers. The change will enable the FCA to deliver continuity in its regulation of the retail finance sector, driving better behaviours and upholding the integrity of the market,” Preston said.