For anyone in the consumer credit industry, you'll know that it is made up a of a spider's web of law and regulation. The core of that legislation – the Consumer Credit Act - was drafted in 1974; the same year that the post-it note and the Rubik's cube were invented. More importantly, 1974 fell three years after the first floppy disk was created - you can see how far technology has come since this Act's inception.
In 2014, the Government transferred regulation of consumer credit from the Office of Fair Trading to the Financial Conduct Authority (FCA). As part of the transfer, the FCA was required to complete a review of the ‘retained provisions’ of the CCA and report its findings to HM Treasury by 1 April 2019. The FCA completed their interim report in August 2018 when they invited stakeholders to submit further comments on their initial findings.
With HM Treasury's deadline of 1st April 2019 looming, the FCA published their final report on its review of the Consumer Credit Act 1974 (CCA) on 25 March 2019. This was an opportunity for the FCA to take into account the technological backdrop, the way firms operate and the type of information consumers want to know. In essence, bring the legal and regulatory framework into the 21st century.
The report shows that a wholesale shake up of the consumer credit market is off the cards. Whilst the report has been eagerly awaited by many in the industry, it has unfortunately not delivered the recommended changes that many firms were hoping for - we are set to largely remain in the times of the Rubik's cube.
The fate of the industry now lies in the hands of the Government who will reflect on the report and decide which of the FCA's recommendations, if any, to implement.
Rights and Protections: no real movement
The CCA directly gives rights and protections to consumers in relation to credit and hire agreements at different stages of the relationship: (1) before entry into the agreement, (2) during the agreement and (3) on exit. These rights relate to credit brokerage fees, connected lender liability, variations, default and enforcement, credit tokens, pawnbroking, withdrawal and cancellation, early repayment, termination, time orders and unfair relationships.
As in the interim report, the FCA's view remains that the rights and protections offered by these provisions are important and should be retained in some form.
Whilst many consumers will be unfamiliar with many of these rights and protections, the latter protection was brought into mainstream focus following the Plevin case. S140A of the CCA makes statutory provision to allow the court to decide when a relationship between borrower and lender can be considered unfair. Following the Plevin ruling, firms were ordered to refund billions in compensation to consumers for undisclosed commission payments. This case was a win for consumers and a lesson for firms that retrospective adjustments to their compliance regime can result in a hefty remediation bill.
Surely with cases like Plevin in mind, the FCA has concluded that the relevant CCA sections on rights and protections could not be replaced by FCA rules without adversely affecting the protection afforded to consumers by them. The good news is that there is at least some acknowledgement by the FCA that an analysis needs to be done to try to ensure there is a proportionate regime between lender and borrower. This might result in some amendments to the position but at this stage we are no clearer.
The bad news is that the FCA has indicated that some CCA provisions cannot be repealed – including s82 (variations), s94 – 98A (early repayment) and s99-100 & 102 (termination) – all of which is overdue a simplification makeover for the benefit of both firms and consumers alike.
Information Requirements: watch this space
The information requirements stem from legislation generated in 1983 (the year the moonwalk was invented), 2006 and latterly by FCA regulation within CONC. They are designed to ensure that consumers receive full and adequate information in advance of entering into, and during the term of, an agreement.
Like in their interim report, it's great to see that the FCA is not going backwards in this area – they have concluded that the information requirements could be replaced by FCA rules, although they do not intend to do a lift and shift exercise. Instead, they see this as an opportunity to analyse the requirements and consumer needs carefully to devise a set of rules that will encourage customer engagement and contribute to informed decision making.
The FCA are also keen to protect the rights of consumers where firms get this wrong. They have advised that these requirements should only be codified into FCA rules if the current sanctions regime is maintained. They see this being achieved either through an update of FSMA to give the FCA power to apply these sanctions (such as unenforceability and disentitlement to interest and default sums) or for the CCA to be amended to attribute these sanctions to a breach of the FCA rules.
The FCA has concluded that certain sections of the CCA could be replaced in full and codified into the handbook including:
- S55 – provision of a copy of the credit agreement on request
- S77B – provision of a statement of account on request (for fixed-sum credit agreements)
- S176 – service of documents
- S176A – electronic transmission of documents
From a consumer perspective, the two key sanctions mentioned above is unenforceability and disentitlement - both of which are automatic rights afforded to consumers. There are also a number of criminal offences which exist within the CCA (which are rarely, if ever used).
As with the interim report, the final report doesn't suggest an outcome or amendments – simply a number of options including the popular alignment of the sanctions with harm i.e. only applying the sanctions where the breach has caused significant harm to consumers.
Overall, the FCA once again concluded that the self-policing nature of the sanctions contributes significantly to ensuring customers receive the information they need, whether that be before entry into, or during the term of an agreement. Their view is that this position needs protected.
The FCA has also noted that this level of protection could not be replicated within the current FCA regime and (as mentioned above) it may require a change in the FCA's power in FSMA or a change in the CCA to allow the FCA to enforce the sanctions.
In any case, the FCA are clear that the existing customer benefits would have to be weighed up against any amendments to ensure that the same level of protection is retained.
Overall, the final report is slightly disappointing as the eagerly awaited definitive direction of travel has not been delivered.
In other words, the CCA legislative Rubik's cube has not been solved and the report hasn't produced a clear user manual to do so.
It is now up to the Government to analyse the report and other factors to hopefully transform the market to a position where it is both effective and proportionate for firms and consumers alike.