Posted April 13, 2023
Our Policy Lead, Meg van Rooyen, on our response to the Government’s Consumer Credit Act consultation and the Act’s important role in consumer protection.
At first glance, reform of the Consumer Credit Act 1974 (CCA) might seem like a dry topic – but the CCA provides the basic protections for consumers who take out credit, which are vital not only to prevent initial harm but to ensure the fair treatment of consumers when they run into financial difficulty.
The Government recently set out proposals to review the Act in a HM Treasury consultation, which we have responded to. It is 35 pages long, but central is our view that the CCA contains many vital individual consumer protections that need to be preserved.
They key challenge is that the Government is considering removing CCA protections so that they fall under FCA rules alone. This would drastically reduce consumer protection by stripping the courts of extremely wide-raging powers to alleviate unfairness in CCA-regulated, and, in some cases, unregulated, credit agreements.
Information notices and credit agreements
The way creditors communicate with their customers plays a key role in ensuring consumers are fully aware of the implications of taking out a certain product and what to do if they are in debt or in vulnerable circumstances, and how they should be treated by their creditors. As such, fair and clear communications play a vital role in consumer protection.
We agree that moving the design of credit agreements and information notices into FCA rules instead of the CCA, will mean it will be quicker and easier to update wording. But it is crucial to preserve key elements of prescription and the mandated information requirements on firms.
We do not support firms being given a free hand to present key consumer information in any way they like, using their own style and wording and making decisions as to prominence of wording. We feel that this would undermine consumer protection. No one wants to find crucial information on their rights has been hidden in an exciting new font style on page five in the small print.
Rights and protections
It is vital to preserve the protections under the CCA that give people rights they can use, at the time they need it. This might be directly with their lender or as part of a court process affecting their individual credit agreement, or protection in a court claim for repossession of their house or car. Examples include:
- section 75 credit card protections;
- time to pay for mortgages, secured loans and hire purchase agreements through time order provisions;
- the unfair relationships rules;
- protections in place for hire purchase and conditional sale agreements so people don’t automatically lose their goods.
We hope the new FCA consumer duty will be a game changer for firm’s cultures and good consumer outcomes, but FCA rules are not a substitute for the rights and protections provided under the current CCA. They cannot resolve a problem for an individual consumer with their credit agreement right when they need it. The right to complain to the Financial Ombudsman Service is important and might result in a complaint being upheld, but this can be many months after the event. For people in need of resolution more urgently, the rights and protections under the current CCA remain vital.
The sanctions regime, in its current form under the CCA, has played a clear role in upholding consumer protections and deterring egregious behaviours by firms, such as not supplying credit agreements or hiding interest that accrues on arrears.
The scope of the sanctions regime was reduced in the 2006 consumer credit reforms, and we worry that its removal could lead to an increase in poor behaviour again by less reputable lenders.
Without an effective sanctions regime, there is little impetus for less scrupulous firms to act in the best way for their consumers. For this reason, we strongly urge the Government to retain it.
A staggered approach to change
The FCA has undertaken a comprehensive and thoughtful review of the CCA – the Government should follow this line and set out the key elements of CCA protections it will preserve when the response to this consultation is published.
- We think the government should follow the line taken by the FCA in its comprehensive and thoughtful review of the CCA.
- We want government to set out what key elements of CCA protections it will keep in its response, so we can all be clear about the next steps.
The Financial Services Act 2012 says:
“In exercising their powers under this section, the Treasury must have regard to- (a) the importance of securing an appropriate degree of protection for consumers”.
It is vital that any changes to the CCA must be made only when it is certain that the appropriate degree of protection has been maintained. Individual protections under the CCA should not be diminished. Any changes should be brought in with extreme caution and made incrementally to ensure these protections are maintained.
Any proposals to move elements of the CCA into FCA rules constitute a substantial and long-term process that should not be carried out in haste – to do so risks undoing significant progress over the years when it comes to protecting consumers from harm.
We think that changes to information notices, and credit agreement wording should be brought forward first. Done well, and with suitable prescription on wording, moving the information requirements into FCA rules could enhance protections for the most vulnerable consumers.
Meg is the Money Advice Trust's Policy Lead and has more than 35 years' experience in the debt advice sector. She is on the Quarterly Account editorial board and a range of other forums. View all posts from Meg van Rooyen.