What will the new consumer credit regime look like?

The Treasury has published its policy statement on the next steps in reforming Britain’s complex consumer credit framework. The plan involves retaining certain aspects of the Consumer Credit Act (“CCA”) while replacing a lot of the related regulations with rules that will sit in the Financial Conduct Authority’s (“FCA”) Handbook. The FCA has also announced that it will consult on those rules soon. It seems likely there will be a generous transition period with so much work to do. In this Keynote, Financial Services partner Simon Deane-Johns gives an overview of the changes below.

Information disclosure requirements

FCA rules will replace various information disclosure requirements under CCA regulations relating to the three phases of consumer credit: pre-contract (Pre-Contract Credit Information, Agreement, etc.), post-contract (statements, copies, etc.) and collections (arrears and default notices, etc.).

Security and enforcement

Security and guarantees (surety) will be addressed in FCA rules with some CCA aspects retained.

The existing CCA prohibition on enforcing defective agreements without a court order and other sanctions will be replaced by the FCA regime (although CCA criminal offences will be retained).

Lenders will not be able to increase the rate of interest in the event of default.

Agreements

FCA rules will largely deal with:

• withdrawal rights and cancellation rights;
• early settlement and related rebates;
• termination of agreements (including voluntary termination);
• credit-token agreements, acceptance and liability for misuse of credit tokens;
• liability for misuse of credit facilities.

Statements by the creditor/owner will be binding.

CCA concepts that will remain

The CCA will continue to define various categories of agreement and related concepts (with necessary amendments):

• consumer credit agreements (the meaning of: credit, running account credit, fixed sum credit, restricted use and unrestricted use credit, debtor-creditor-supplier agreements, and debtor-credit agreements);
• consumer hire agreements;
• pawnbroking;
• negotiable instruments;
• land mortgages; and
• linked transactions.

The CCA will define certain types of ancillary credit businesses (including credit reference agencies).

Various consequences will also still be ordained under the CCA:

• the recovery of money paid by the debtor or hirer, return of goods and goods given in part exchange, in the event of cancellation;
• withdrawal from a prospective agreement;
• death of debtor or hirer;
• protected goods, recovery of possession of goods or land;
• ineffective securities;
• provisions under judicial control (including time orders, interest, etc.); and
• enforcement of the CCA.

If you have questions or concerns about the consumer credit regime or would like to have a better understanding of the implications for your business, please contact Simon Deane-Johns.