In June of this year, the UK government finally committed to “ambitious long-term reform” of the Consumer Credit Act 1974 in its efforts to modernise our consumer credit laws – a welcome move that would help simplify rules for consumers and enable firms to deliver products and services more suited to a mobile-first economy.
This commitment represents a potential win-win situation all round and a chance to strip back years of complexity and to rebuild a framework that fosters innovation while maintaining customer protections.
Passed in July 1974, the CCA regulates billions of credit card purchases and loans each year as well as giving consumer credit customers important protections throughout the lifecycle of their credit agreement.
Given the advancement of technology over the past few decades, the role of the CCA has evolved significantly as digitised financial services models continue to permeate into every aspect of our everyday lives – whether it be paying for coffee or buying a new car.
So, as financial services have embraced technology, consensus has grown within the industry that the current legislation is simply no longer fit for purpose: the CCA is, in the own words of the government, “highly prescriptive and increasingly cumbersome and inflexible” – confusing consumers and adding unnecessary costs to businesses when implementing its requirements.
It was therefore only a matter of time before reforms were finally laid out on the table; if anything, it is remarkable that it has taken this long.
We have a new government in place. It is vital that ministers continue to pursue this set of reforms, and that they do so in a way that delivers for consumers and builds a framework appropriate to an increasingly digital financial services sector, while also being agile enough to accommodate future developments.
There is a significant opportunity to use many years of data on the use of consumer credit products, and to consider what consumers today expect and need when using those products, to create a regime that offers clear information and focuses sanctions in areas where there is real customer harm.
Bringing legislation into the 21st century
First and foremost, we need regulation that is in keeping with the modern world.
For almost 50 years, the CCA has remained unchanged while the financial services industry has evolved almost beyond recognition.
Instead, new laws and regulations introduced by the EU or addressing areas such as payments have been overlaid, creating a tangle of rules and unnecessary complexity for consumers and businesses alike.
This has increased the costs for existing lenders, created a barrier to entry for newer providers and is confusing for consumers trying to understand their rights and protections.
As legislation in this area has proliferated, the pace of technological change has also been impressive and newer technology raises questions that the regime cannot answer.
For example, it is unclear how electric cars should be valued at the end of the finance contract, and it is difficult to meet the consumer demand for electric cars and charging points to be financed in the same transaction.