Asset Finance: Wholesale Reform of CCA regime

The Government has announced that it is committed to a long-term wholesale reform of the Consumer Credit regime.

Whilst welcoming this announcement, it is rather difficult to see how there was any alternative.

Much of the legislation and regulatory framework around Consumer Credit in the UK has intimate links with the European Consumer Credit regime, which goes some way to explaining the inordinate complexity of the current framework, which is comprised of numerous layers of primary and secondary legislation, including the Consumer Credit Act 1974 (“CCA”), detailed Regulations made under it and the FCA Handbook.

Changes made over the years since the CCA was passed almost 50 years ago have complicated matters to say the least, and even specialist lawyers dealing with the subject on a daily basis need to be laser focused in ensuring that they understand the details of the legislative and regulatory environment.

Nor has the pace of change slowed down in the past decade: for example the latest 2020 version of the Commercial and Consumer Law Handbook now runs to some 2408 pages, an almost 33% increase on the 2012 version, and much of this is directly related to Consumer Credit.

That the Treasury commits to bringing in an “ambitious long term reform” is, therefore, welcome news.

In short, the plan is to move much of the CCA away from statute, and place it under the FCA Handbook. The intention is that this will allow the FCA to be more agile in responding to emerging developments in the consumer credit market, rather than having to amend existing legislation.

The Government states the changes will allow financiers to provide a wider range of finance whilst maintaining robust consumer protection. The aim being that financiers can more easily provide finance for new technologies, helping consumers to embrace technological change, and to “cut costs for business and simplify rules for consumers”.

John Glen, economic secretary to the Treasury, said the CCA required reforms in order to keep pace with the modern world. He added, “we want to create a regulatory regime that fosters innovation but also maintains high levels of consumer protection”.

The Government announcement was however short on detail as to what can be expected in the latest comprehensive review. There are some indications of the likely scope of reform from previous reviews, for example changes in principle to those CCA provisions which give rise to the automatic sanction of unenforceability without a court order (such as where an agreement is improperly executed because it fails to comply with form and content requirements) are not expected. The FCA’s view is that this sanction ensures self-policing and appropriate firm conduct and this view is likely to be adopted by whichever Government is at the helm when the new regime is finalised, whenever that may be.

One issue which may be the subject of fierce debate is the extent to which the CCA regime should cover business customers at all; some time ago the trend was believed to be moving against comprehensive regulation of dealings with business customers, but over recent years the philosophy seems to be changing towards smaller businesses having degrees of protection similar to that of consumers. In view of the likely timescale of the promised reforms there may well be significantly different approaches between different Governments between now and the date when reforming legislation emerges in its final form.

Contact Bermans Asset Finance team