UK Treasury consults on reforms to Consumer Credit Act

Late last year, HM Treasury released a consultation into reform of the Consumer Credit Act (CCA). This forms part of the package of measures introduced under the ‘Edinburgh Reforms’ on 9 December 2022.

The consultation recognises that the way consumers interact with credit products has evolved significantly over recent years. In fact, many credit products exist today that did not when the CCA was designed over 50 years ago.

The consultation further recognises that the existing consumer credit regime has become too complex and fragmented. It contains overlap that restricts optimal outcomes for consumers and businesses alike.

Key objectives

HM Treasury is committed to modernising and streamlining consumer credit regulation, facilitating innovation in products, and promoting economic growth in the UK. This consultation is the first step in that process of reform.

Proposed reforms

Interested stakeholders now have an opportunity to make representations on the scope and form of the reforms. Topics include:

• existing definitions and concepts in the CCA, such as the meaning of ‘credit’;
• terms that are not currently defined, but which should be;
• terms that have required case law to provide clarity;
• the scope of business lending under the CCA and the £25k threshold;
• the form, content and timing of information disclosures to consumers;
• the proportionality of sanctions relative to the consumer harm caused;
• accommodating Sharia compliant loans within the consumer credit regime; and
• the removal of barriers to finance renewable energy solutions (such as electric vehicles) and green home appliances (such as solar panels).

Five principles

The following five principles will underpin the proposed reforms:

1. Proportionality – balancing appropriate levels of consumer protection with burden on businesses.
2. Alignment – with implementation of the Future Regulatory Framework, and the style and substance of current financial services regulation.
3. Forward-looking – adaptable to the needs of businesses and consumers in the future.
4. Deliverable – both for financial services regulators and industry.
5. Simplified – so consumers are clear on the protections they have, and firms can communicate these easily.

Next steps

The consultation is open until 17 March 2023. Interested stakeholders can submit their responses to consumercredit@hmtreasury.gov.uk.

HM Treasury will review the responses and develop more detailed policy proposals. In due course, the FCA will consult on its approach to the new rules.