Reforming the Consumer Credit Act: A New Era for Consumer Protection
It's finally here! 51 years since its creation, and with numerous changes along the way, HM Treasury has launched the long-awaited (and much needed) overhaul of the Consumer Credit Act 1974 (CCA) with a consultation published on 19 May 2025.
Given the breadth and depth of this reform, the consultation is being broken down into two phases. Phase 1 (which has been published) sets out the vision, which is framed around a major push to modernise the UK's consumer credit legislation, making sure it stays relevant, effective and aligned in today's fast-changing world. Phase 2, which has not been published and for which there is no prescribed timescale for, will set out more prescriptive detail on how this vision will be achieved. If you've been tingling with anticipation waiting to see the exact details of the reforms, you might need to wait a bit longer!
“It is vital that the UK has a modern, agile and proportionate regulatory regime for consumer credit that is equipped to provide robust protection for consumers.”
With up to 28,000 authorised credit providers and 84% of the public holding at least one unsecured credit product, it's clear that both lenders and consumers will welcome these changes. The consultation outlines numerous aims, including:
Improving the level of consumer understanding
Promote growth of the UK economy
Alignment to the principles-based approach of the FCA
Removal or disproportionate requirements and consequences
Adaption to the modern digital credit market
Improvement of customer outcomes
“It must promote a competitive, responsible and innovative credit market which will support growth of the UK economy.”
The vision of the reform aligns closely with the four pillars of the FCA's latest 5-year strategy, which will shape its new approach. However, there’s an argument that there is scope for conflict across these pillars and it will be interesting to see how this balance is managed as/when the specific details of the reforms emerge.
The consultation is likely to result in tangible changes to how regulations are applied in daily practice.
As a firm of industry experts, we're already anticipating how these changes might unfold – so get in contact with us - we’d be delighted to have an informed conversation and share thoughts/perspectives on this.
A few key takeaways and highlights from the consultation:
Simplification & Innovation: Often there is conflict and confusion between the FCA’s principle-based regime and the detailed CCA requirements. An overarching goal and vision is to simplify the consumer credit regime, making it less prescriptive and more understandable for consumers but importantly to also help drive innovation and growth for firms developing new products. An example of this simplification includes repealing outdated technical aspects of the CCA, such as provisions related to modifying agreements and electronic disclosure.
Moving to the FCA handbook: Large chunks of the CCA could be removed and handed over for the FCA to set rules within the handbook. Where the government feels that FCA rules (or FSMA) would offer similar protections and outcomes to customers, the FCA will be able to amend the handbook “as it sees fit”. For example; information requirements related to pre-contract disclosure and statutory lettering requirements such as sending notices of sums in arrears (NOSIAs) will likely be removed and replaced by new rules in the FCA handbook. It should be noted that the FCA will hold a separate consultation on the new rulebook provisions that will replace the repealed sections of the CCA (and our chats with the FCA’s Consumer Finance team suggest that this is already a big area of focus for them).
Consumer Protections & Unenforceability: The treasury highlights the need to trust and rely on the FCA's and FOS’s mechanisms for providing protection against customer harm and as a result propose removing several statutory sanctions on firms for non-compliance with CCA information requirements, such as unenforceability of an agreement and disentitlement to interest. CCA sanctions can be pedantic, disproportionate and/or open to different interpretations and don't always result in good outcomes for customers and cause operational headaches for firms. For instance, terms like "enforcement action" and what actions a firm can or cannot take when an agreement is deemed "unenforceable" are not well-defined. This ambiguity means customers might still face collection actions, such as calls and letters, or even be charged fees and interest. They just won't face formal recovery actions through the court system, which seems unfair, especially when formal enforcement may not be a viable option anyway due to the customer's individual circumstances. Additionally, when a firm breaches the CCA by sending inaccurate or incomplete statutory notices, or failing to send them at all, the current remedy is to send all the correct notices that should have been received. This can lead to customers receiving outdated information, causing confusion, especially if the arrears have been resolved or the customer is actively engaging with the firm. Firms will be glad to see the back of these sanctions.
Timeline
With the two-phase approach and a separate consultation for changes to the FCA handbook, this process is set to be lengthy. Phase 1 focuses in on the overall vision for a reformed regime, and firms must provide feedback by 21 July 2025. The timeline for Phase 2, which will further address consumer protections and the scope of the regulated credit regime, is yet to be announced.
Get in touch with any questions on the consultation, how this may impact your firm and stay turned for further updates as the consultation progresses and the government moves towards implementing these crucial reforms.