FCA Final Report on CCA Review
The Government has published the FCA’s final Report on its review of the Consumer Credit Act. While the Report does not include formal ‘recommendations’ for change, it does comment on which CCA provisions should be retained (not necessarily in the CCA) and where further amendments should be explored.
As part of the transfer of consumer credit regulation to the FCA in April 2014, it was agreed that the FCA would undertake a review of the CCA and report to HM Treasury by 1 April 2019. The review would explore which CCA provisions could be replaced by FCA rules or guidance under FSMA and apply the test that any burden or restriction should be proportionate to the benefits. An Interim Report was published in August 2018 setting out the FCA’s initial views and the review has included research with both firms and consumers, as well as stakeholder roundtable discussions.
The review was concentrated on three areas:
- Rights and protections
- Information requirements
The Final Report
The FCA’s views are summarised below:
(i) Rights and Protections
- The current consumer protection measures covering credit brokerage fees, connected lender liability, variation of agreements, default and enforcement, credit tokens, pawn broking, withdrawal and cancellation, early repayment, termination, time orders and unfair relationships remain important and should be retained in legislation as the same level of protection could not be replicated in FCA rules.
- But more detailed consideration should be undertaken to ensure that the level of protection provided does not generate a disproportionate burden on firms.
- Connected Lender Liability – While section 75 provides a strong consumer protection measure and should be retained, there would be merit in considering further some of the issues raised as part of the review, such as whether the cash value limits should be reviewed and a customer’s ability to bring a claim for consequential losses following a breach of contract or misrepresentation.
- Withdrawal and cancellation – There could be a case for aligning the regimes for withdrawal (Section 66A) and cancellation (Section 67) to simplify firms’ obligations and review their scope and application.
- Time Orders – While their use is limited, they remain an important form of protection.
- Unfair relationships – Section 140A will remain, as the FCA considers that a debtor or surety should be able to ask the court for relief from the consequences of an unfair relationship.
- Brokerage fees – Section 155 could be replaced with an FCA rule obliging firms to provide a refund in the same or similar circumstances.
- Voluntary Terminations – Section 99 should be retained in legislation but the FCA agrees there should be a review of the provisions and how they operate, taking into account changes in the market and the relevant products.
- Termination of agreements – Sections 101 to 103 could be repealed and replaced with FCA rules. There might be merit in reviewing the operation of the voluntary termination provisions in the light of changes in the market – including the increased use of consumer rental and the position or hire purchase.
- Credit tokens – There is scope for looking at the overlap which arises between Regulation 73(2) of the Payment Services Regulations 2017 and Section 66 of the CCA and the risks which arise should a card or PIN be intercepted.
(ii) Information Requirements
- A framework for consumer information continues to provide important consumer protection and needs to strike the right balance between prescriptive and more principles-based requirements.
- Most of the substantive information requirements could be replaced by CCA rules, which would provide an opportunity to review whether they are targeted at the needs of consumers and strike the right balance without imposing disproportionate burdens on firms.
- Any loss of sanctions, such as unenforceability, could adversely affect consumer protection and should be retained in the CCA or other legislation.
- The following provisions could be reproduced in whole by FCA rules – Section 55C (credit agreements on request), Section 77B (statement of account for fixed-sum agreements), Section 176 (proper service of a document) and Section 176A (when a document has been transmitted electronically).
- The following could not be replaced by FCA rules – Section 76, 78A, 82(1), 87 and 98.
- Pre-contractual information – Aligning the requirements (subject to CCD compliance) between the 1983 and 2010 Agreements Regulations might deliver increased flexibility.
- Modifying Agreements and Unilateral variations – These should be reviewed to simplify the process in Section 82.
- Multiple Agreements – Section 18 should be reviewed to clarify its scope and effect and the information requirements included in FCA rules.
- Post-contractual information (statements, arrears notices and default notices) – These can be detailed and technical and changes to the tone and language might lead to better consumer outcomes. However, enforcement, default and termination notices should all continue to be sent using paper form.
- Gone Aways – The information provided to ‘Gone Aways’ should be reviewed – the FCA’s research identified over 500,000 cases where this had happened.
- A combination of CCA sanctions, FCA regulatory powers and the private right of action under FSMA is appropriate.
- The self-policing nature of the sanctions of unenforceability and disentitlement to interest and default sums contributes significantly to ensuring key customer information needs are met.
- There is merit in retaining the sanctions in legislation, subject to reviewing the scope of their application. There might, however, also be scope to expand the FCA’s rule-making powers to allow for unenforceability and disentitlement as sanctions for breach of certain FCA rules.
- The sanctions should be focused on breaches which are likely to cause material harm to consumers, particularly the more vulnerable or those in financial difficulties.
- In general, the criminal offences in the CCA are no longer needed.
HM Treasury will now consider the Report and agree next steps, but it seems highly unlikely that there will be much appetite for securing the parliamentary time required for making the legislative changes required.
On a more general note is perhaps worth noting that whereas a decade ago there was still some hope that eventually business to business transactions would be removed from the scope of the CCA altogether, this FCA review confirms suspicion that the direction of travel is very much towards aligning business to business transactions with the increasing levels of protection afforded to consumer transactions.