Consumer credit reform is on the horizon

The Government is consulting on proposals to reform the Consumer Credit Act 1974 (CCA) framework. As anyone who has advised on the regime will well know, it is vast and complicated, and as a result HM Treasury has decided to split its consultation into two phases. Phase 1, which closes for comment on 21 July 2025, deals with information requirements, sanctions and criminal offences. 

The issues with the current regime 

The consultation begins by setting out that the legislation governing consumer credit has not kept up with the way in which the consumer lending market has changed. In particular, the current regime is poorly adapted to technology and is complex and confusing. The Government is looking to put in place a simpler regime which allows flexibility and innovation (supporting the use of technology), while still delivering good consumer outcomes.

The Government has confirmed it intends to repeal many of the remaining CCA provisions and much of the secondary legislation, leaving the Financial Conduct Authority (FCA) to recast appropriate requirements in its Handbook (allowing for a more flexible and outcomes-based regime). Some of the provisions will be repealed if the Consumer Duty and FCA complaints processes provide robust enough consumer protection.

Reform of information provision requirements 

One of the key areas the Government intends to reform is that around information provision. The current information provision requirements can be found in the CCA, accompanying statutory instruments and in CONC (the Consumer Credit sourcebook within the FCA Handbook). The information required to be provided can be confusing and doesn’t always assist consumer understanding. Drafting consumer credit agreements requires a specialist with knowledge of the workings of the legislation. 

The Government proposes that an information disclosure regime contained only in the FCA Handbook is a better solution. This will also be aligned with the Consumer Duty (supporting customers to make informed decisions), focussing on outcomes for consumers rather than prescriptive rules.

The Government also wants to make sure that information disclosure requirements keep up with technology given that many credit agreements are now taken out via Smartphones, noting it is a very different experience reading information on a Smartphone rather than on paper or a large screen. 

Therefore, HM Treasury will repeal all information provisions in the CCA, and these will be recast where required into FCA rules; the FCA will review and consult as necessary on the information provisions to be included beyond existing rules and the Consumer Duty. Some of the areas the Government proposes to do away with include the prescribed content requirements as to pre-contractual information, which is a welcome proposal. 

Removal of sanctions 

Currently, where a firm breaches certain information requirements in the CCA, the agreement may be unenforceable (for example, without a court order if the agreement does not contain the prescribed terms). The Government states it has seen very little evidence that firms regularly use the courts for enforcement purposes or that there is much litigation involving breach of information requirements; mostly these issues are resolved through firms themselves or the Financial Ombudsman Service. Therefore, the Government thinks the sanctions provide little benefit for consumers and that it is no longer necessary to include these in the consumer credit regime. In other words, these will be removed. This will also help to bring consumer credit rules in line with the FCA’s move to outcomes-based regulation.

The Government plans to move forward with CCA reform at pace. Phase 1 closes in July, following which the Phase 2 consultation will (hopefully) swiftly follow.

The Birketts view

Reform of the CCA to reflect more modern practices as to lending (and the taking out of loans) is long overdue. The regime has long been considered overly complex and confusing, with requirements appearing in the CCA, secondary legislation and the FCA Handbook all at once. Compliance with the regime requires instructing an expert adviser and can be incredibly costly. Firms can also be “caught out” and be left with an unenforceable agreement where there is an oversight. No doubt industry will support consumer credit regime reform with open arms.