Consumer Credit Act reform – phase 1
HM Treasury (HMT) has issued its Phase 1 consultation paper (CP) on CCA reform. The CP can be found here and is open for responses until 21 July 2025.
The CP outlines the government's strategic approach to reform in certain key areas, leaving the Financial Conduct Authority (FCA) to consult later on the detailed implementation. The direction of travel is to repeal many of the remaining CCA provisions and associated secondary legislation, and then recast conduct requirements in the FCA's Handbook, including its Consumer Credit Sourcebook (CONC).
Key Areas in the Phase 1 CP
Information requirements
HMT’s approach is to repeal all information disclosure provisions in the CCA and accompanying regulations. These relate, for example, to the form and content of pre-contractual credit information, the content of credit agreement terms and conditions, and the form and content of notices such as Notices of Sums in Arrears (NOSIAs).
This aligns with the FCA’s Consumer Duty, which focuses on consumer understanding and support. It will allow the FCA to create flexible rules allowing lenders to provide consumers with the right information at the right time during the customer journey, avoiding duplication and supporting good consumer outcomes. It will also support digital technology developments in an increasingly online environment. This aspect of the reforms has been long-awaited.
Sanctions
The HMT proposals, which will be welcomed by the credit industry, are to repeal all current CCA sanctions for non-compliance. These include unenforceability of credit agreements and non-liability for interest and charges due to technical infringements, such as non-compliant annual statements and NOSIAs. In many cases, there is little or no evidence of consumer detriment, and the penalties for non-compliance are seen as disproportionate and draconian. The proposed approach is to rely instead on the range of consumer rights and protections under the Financial Services and Markets Act 2000 (FSMA), the FCA's extensive supervisory and enforcement toolkit, and consumers’ ability to complain to the Financial Ombudsman Service (FOS).
Criminal offences
Some CCA provisions still give rise to criminal offences for non-compliance, though HMT has found no evidence of recent prosecutions. The starting point is therefore to assess whether it is strictly necessary to retain some or all of these offences, failing which they will be repealed.
Next Steps – Phase 2 Consultation
HMT has promised a Phase 2 consultation paper, though the timing is yet to be confirmed. This second CP will focus on consumer rights and protections, simplification of key definitions in the current CCA regime, and the scope of consumer credit regulation. One key question will be whether CCA regulation should continue to cover small business lending (currently for business credit of £25,000 and below) and, if so, whether the threshold should be increased.
Although HMT has split the consultations into two phases, the intention is to complete the policy work for both before implementing any changes. While there may have been opportunities for quick wins, it now appears that substantive reforms are still some years away.
Please contact John Lunn, our Head of Consumer Finance, if you wish to discuss any aspects of CCA reform that may be of interest to your business.
