A reminder of previous consumer credit reform recommendations
The FCA's final report on its review of the CCA retained provisions, published in March 2019, focused on three main themes – rights and protections, information requirements, and sanctions. This Engage article on the final report sets out some more information on each of these areas.
The February 2021 Woolard Review report contained a number of recommendations on how to improve the unsecured lending market, though much of the detail on how these outcomes should be implemented was left to the FCA (see our Engage article). One initiative currently being taken forward is regulation of buy-now-pay-later (BNPL) products. An HMT consultation on the scope and form of the regime closed in January 2022, with a response expected shortly. Take a look at this Engage article for more on the BNPL proposals.
What is the government planning to do now?
The press release announcing the reform commitment makes it clear that the government is looking at 'ambitious long-term reform' to create a regulatory regime that fosters innovation but also maintains high levels of consumer protection. To this end, the government will:
- move much of the CCA from statute to the FCA Handbook, enabling a much more agile regulatory response to emerging developments in the consumer credit market;
- simplify ambiguous technical terms to make clear to consumers what protections they have, and make it easier and more cost effective for businesses to comply with regulation;
- take advantage of the additional opportunity for regulatory reform post-Brexit to examine which parts of EU retained legislation can be repealed or replaced to ensure regulation is 'better suited to the needs of the British people'; and
- ensure lenders can provide a wider range of finance – including for emerging and new technologies such as electric cars – whilst maintaining high levels of consumer protection.
The wider context: cost of living crisis
The government's announcement comes at a time when the macro-economic situation could present challenges in the context of consumer lending, with lenders having to ensure the right balance between consumers’ need for access to credit with the requirement for that credit to be affordable and sustainable, given the increasing risk of financial difficulties ahead and the FCA’s new Consumer Duty looming on the not-so-distant horizon.
Coinciding with the government's press release, the FCA has also announced that it has written to more than 3,500 lenders – including retail banks and consumer credit firms – and even some unregulated BNPL firms - to remind them of the standards they should meet as consumers across the country are affected by the rising cost of living. The FCA will continue to monitor outcomes and carefully scrutinise firms and will use its supervisory and enforcement powers to take further action as necessary. It makes it clear that it is not waiting for the Consumer Duty to come in before it acts to improve consumer outcomes.
EU reforms to the Consumer Credit Directive
Consumer credit regulation is also a focus within the EU, with work under way on a proposed Directive on consumer credits (CCD II) to revise and replace the current Consumer Credit Directive (2008/48/EC). On 9 June 2022, the Council of the EU published a press release announcing that it has agreed its general approach on the proposed Directive. This completes the negotiating mandate agreed by the Council and provides the Council Presidency with a mandate for further discussions with the European Parliament, once the Parliament adopts its position on the proposed Directive.
The EU's proposals will be of interest to those consumer credit firms with a European presence. No doubt the UK government is also keeping a watching brief on this initiative for any points that might be relevant from a UK perspective as it develops its own proposals.
In its press release, HMT emphasises that reforming the Consumer Credit Act is complex and will require substantive work over an 'extended timeframe' to ensure that the changes are fit for purpose. A consultation on the government's proposals is expected to be published by the end of this year.
For firms that currently offer or are considering developing consumer credit products, engagement with the government on the reform proposals will be key. If you would like to discuss the potential impact on your business either now or as the government's proposals take shape in the coming months, please contact us.
Authored by Julie Patient and Virginia Montgomery