Insights ¦ CCA Reform Phase 1 Consultation

Key Take Aways

1. The UK government is embarking on a comprehensive reform of the Consumer Credit Act (CCA), aiming to modernise and simplify the consumer credit regime for the next 50 years.
2. The reform seeks to replace outdated prescriptive rules with a principles-based, outcome-focused approach, aligning with FCA regulation and covering digital and technological advancements.
3. A phased approach is proposed, with Phase 1 focusing on the overall vision, information requirements, sanctions, and criminal offences, and Phase 2 addressing scope, rights, and protections.
4. Significant provisions linked to information disclosure, such as default notices, agreements, and notices to minors, are proposed for repeal and recasting into FCA rules, providing more flexibility.
5. The government intends to remove automatic sanctions for breaches, citing proportionate consumer protection through FCA enforcement powers and the courts, arguing sanctions are disproportionate and potentially counterproductive.
6. Criminal offences within the CCA, including canvassing, sending documents to minors, and failure to provide credit reference information, are considered for repeal, subject to ongoing debate on their necessity.
7. The reform emphasises fostering innovation, especially through digital pathways, and enabling green and Islamic finance products by removing regulatory barriers and prescriptive requirements.
8. Stakeholder engagement has been broad, with over 80 organisations commenting, revealing widespread support for reform but also concerns over the impact on vulnerable consumers and specifics of transitional arrangements.
9. The government prioritises a proportional, flexible, and modernised regime aligned with broader financial regulation, balancing consumer protection with regulatory agility.
10. The reform supports financial inclusion efforts by aiming to enhance understanding, accessibility, and fair treatment for consumers with protected characteristics, including vulnerable groups.
11. A detailed consultation process is scheduled, with responses invited until July 2025, enabling stakeholders to influence the future framework for consumer credit regulation.
12. Extensive legislative and regulatory shifts are anticipated, requiring primary legislation, FCA rule recasting, and transitional provisions to ensure a smooth rollout of the new regime.

Key Statistics

• The UK non-mortgage lending market has grown to over £200 billion.
• 84% of the British public now hold credit products.
• Over 28,000 firms are authorised to carry out credit activities by the FCA.
• 49% of UK adults (approximately 26.4 million) showed one or more characteristics of vulnerability as of May 2024.
• 17% of adults have a mental health condition impacting their financial interactions.
• 53% of adults with accessibility needs report no reasonable adjustments by providers.
• 36% of UK adults felt they had low knowledge about financial matters, with 59% of those in financial difficulty reporting low financial literacy.
• Only one criminal conviction recorded under Sections 48 and 50 of the CCA since 1984, illustrating the old offences’ limited enforcement.

Key Discussion Points

• The UK government aims to modernise the consumer credit framework to keep pace with digital innovation and diverse product offerings.
• Significant provisions linked to prescriptive information and enforcement sanctions are targeted for repeal to promote a less rigid, more outcome-based regime.
• The shift away from automatic sanctions reflects a view that existing FCA powers, combined with court remedies, provide sufficient consumer protections.
• Repealing criminal offences part of the reform is under consideration, with discussions around maintaining offences that act as deterrents against specific harms, such as practices involving minors or door-to-door canvassing.
• Stakeholder feedback underscores support for reform but also highlights concerns regarding protections for vulnerable consumers and transitional complexities.
• The reform’s success hinges on a balanced approach that safeguards consumers while fostering technological advances and product innovation.
• The phased consultation reflects prudence and stakeholder engagement but underscores the challenge of aligning legislative and regulatory timelines.
• The consultation strives to address barriers faced by Islamic and green finance, aiming to remove regulatory obstructions while maintaining consumer confidence.
• The overarching goal is to create a flexible, proportionate regime in line with FCA principles such as Consumer Duty and broader financial regulation standards.
• Focus on enhancing consumer understanding and accessibility, especially for those with protected characteristics and vulnerability, is central to the reform’s impact assessment.
• The overhaul anticipates major legislative changes requiring primary legislation, secondary regulation, and FCA rule recasting, with transitional arrangements to mitigate disruption.

Document Description

This article is an in-depth consultation document outlining the UK government’s strategy to overhaul the Consumer Credit Act (CCA). It details a phased approach to modernising consumer credit regulation, driven by technological advancements, market growth, and evolving consumer behaviours. The document emphasises replacing prescriptive regulations with outcome-focused, FCA-led rules, removing unnecessary criminal offences and sanctions, and fostering innovation and financial inclusion. Stakeholder engagement, impact assessments, and considerations of protected characteristics and cross-cutting themes such as green and Islamic finance underpin the reform proposals. Stakeholders are invited to respond by July 2025, with the overarching aim of creating a forward-looking, proportionate, and flexible regulatory regime for the next 50 years of consumer credit activity.