Long ReadOct 10 2022

Regulation for the modern consumer

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Regulation for the modern consumer
(Photo: Andrea Piacquadio/Pexels)

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.

 We need regulation that is in keeping with the modern world.

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.

The rigid nature of the current legislation, coupled with the ever-looming spectre of unenforceability, means that providers are less likely to innovate in this area to support the adoption of electric cars.

It is therefore vital that any reforms focus not just on bringing the current framework up to date, but also including much-needed agility to address future developments.

But even on the most basic level, the adoption of the smartphone has changed the way most consumers interact with their financial services providers, and this in turn has meant a shift in the way those providers communicate with consumers.

The prescriptive nature of the CCA means firms are required to provide information in a standard format and to send prescribed notices that are often severe in tone.

There is an increasing regulatory focus on tailoring the customer experience to individual circumstances, which is at odds with the strict approach demanded by the CCA.

While other financial services products do not share the exact same challenges raised by the CCA, this commitment for reform should be of interest to all advisers regardless of their particular field.

Technology is providing a springboard for developments in every type of financial service, with legislation very often lagging behind.

There is an opportunity to engage in this reform process and to ensure the direction of travel in legislative thinking is helpful to the wider market.

The wider context

The timing of the government’s pledges could also not be more pertinent; it comes during the worst cost of living crisis in almost 40 years and when the macro-economic stakes could not be higher.

More than ever before, lenders are bearing the overwhelming responsibility of striking the right balance between providing access to credit for consumers who need it most with the requirement for that credit to be affordable and sustainable.

According to research by Compare the Market, 35 per cent of people in the UK are likely to take on additional debt to afford everyday bills.

Alongside this, we have a new government that is tasked with decoupling our legislative agenda from that of the EU, and a regulatory focus from the Financial Conduct Authority on the new consumer duty, which all financial services firms must implement.

There is a real opportunity to look at the regulatory landscape surrounding consumer credit with fresh eyes and with a modern-day customer as the focus.

For the process to drive meaningful change in the consumer credit market, it needs the whole industry to engage.

There should not be any doubt in anyone’s mind that consumer credit reforms are necessary. But how impactful they will be depends on the level of this engagement.

A tough winter ahead only highlights the need for firms to be able to communicate in a way that is tailored to a particular customer's circumstances and to offer flexible solutions to customers' need for credit.

This means a regime that does not use the ultimate sanction of unenforceability as a blunt tool and that takes comfort from the wider regulatory initiatives, such as the new consumer duty, which are also aimed at ensuring the market functions properly for consumers.   

The legislation in question may be inflexible and outdated, but the area that it seeks to regulate has never been more dynamic and relevant.

We must ensure that we take this opportunity not simply to bring what exists already in line with today’s expectations, but to look fundamentally at how changes to date and yet to come can be met by a flexible regime.

Indeed, it will be a showcase for other areas of financial services that are crying out for legislative change.

Jenny Steven is general counsel at Fluro