Overdue Reform of the UK Consumer Credit Act

The Treasury is consulting on a long overdue overhaul of the Consumer Credit Act 1974 (CCA) which covers the UK’s £200bn non-mortgage consumer credit industry, including personal loans, credit cards, hire purchase and pawn-broking. I'm waiting on publication of a longer note summarising the detail, and will post a link to that here. You have until 17 March 2023 to respond. Let me know if I can help you in understanding the proposals and likely impact. 

Brexit

As previously mentioned, the current consultation was actually proposed in June, just prior to the European Commission proposal for a new Consumer Credit Directive (CCD2).  Extensive changes were made to the CCA in 2010 to implement CCD1, which had considerable input from the UK. 

Supervision of the CCA transferred from the Office of Fair Trading to the Financial Conduct Authority  in 2014 under the Financial Services and Markets Act 2000 (FSMA). This meant adding consumer credit and hire agreements, and related activities, to the FSMA (Regulated Activities) Order 20012 (RAO); and transferring some CCA regulations to the FCA’s rules. The Treasury now wishes to transfer “the majority” of the CCA to FCA rules, which seem likely to align with CCD2. 

Some aspects that are specific to Scotland and Northern Ireland will be addressed later in the review process.

Scope and Impact

The CCA regulates consumer credit and consumer hire, although the latter has less protection. The government has already announced plans to regulate many Buy-Now Pay-Later (BNPL) products that are currently unregulated. 

Broadly, the activities of entering into regulated credit and hire agreements require FCA authorisation and specific permission when carried on by way of business, as do the activities of exercising the rights of a lender (or owner, for hire purposes) and various ‘ancillary services’ such as credit broking, debt collection, debt counselling, debt adjusting, debt administration, operating an electronic system in relation to lending (peer to peer lending), credit information services. 

Advertising credit and hire products is also regulated, even for unauthorised firms. 

The FCA’s new Consumer Duty does not apply to unregulated or exempt individuals or products in the same way as the CCA regime, but that new duty changes the context in which the CCA protections operate; and makes authorised firms liable for certain activities of unauthorised firms in the product 'distribution chain'.

About 6,000 authorised firms have permission to enter into consumer credit or consumer hire agreements; and 36,000 FCA firms have credit permissions (mainly credit broking). 

I will update this post with a link to the more detailed note shortly.

The Suspicious Timing of The UK Government Review of The Consumer Credit Act

The UK government recently issued a brief press release promising a consultation "by the end of this year" on plans to review the Consumer Credit Act 1974 (CCA). I think you'll agree that the timing and lack of detail is more than a little suspicious.

The release spouts the usual guff about supposed Brexit benefits:

"Leaving the EU has provided additional opportunity for regulatory reform and the government will examine which parts of EU retained legislation can be repealed or replaced to ensure regulation is better suited to the needs of the British people." 

The Economic Secretary also claims that "The Consumer Credit Act has been in place for almost 50 years - and it needs to be reformed to keep pace with the modern world." 

It's a little disingenuous, then, for the press release not mention that the CCA and related regulations were extensively amended in 2010 to implement the EU Consumer Credit Directive of 2008 (CCD1).  

I mean, why pass up an opportunity to blame the EU for legislation you plan to 'reform' all on your own?

It's verging on suspicious that the press release also presents the UK government's review of the CCA as somehow politically independent and part of a more general review of "EU retained legislation" without so much as pointing a finger at the extensive process for reviewing CCD1, which began in 2014 before Brexit was even conceived and culminated in a report in 2020 before Brexit took effect. 

Suspicions are confirmed, however, when the press release makes no mention of the previous week's announcement by the Council of the EU, on 9 June 2022, that it had agreed its approach to a detailed proposal for a new consumer credit directive (CCD2). 

Perhaps the minister is unaware that the UK played a significant role in the development of CCD2? If so, it will come as an enormous surprise when it is revealed that the government has adopted the same approach in its next revision of the CCA, just as it did in 2010. 

But, hey, blue passports!