Shake-up of consumer credit proposed in Edinburgh Reforms
The UK government has published its first consultation on the Consumer Credit Act, aiming to simplify the regime to encourage innovation in the credit sector.
The proposals, released on 9 December, will look to cut costs for consumers and businesses, while also increasing equality and fairness in the credit market by improving accessibility.
In addition, it will seek to address concerns around the compatibility of the CCA with the provision of credit for products like electric vehicles or green homes appliances, which did not exist when the Act was first introduced in 1974.
The consultation was released by chancellor Jeremy Hunt (pictured) as part of the Edinburgh Reforms, around 30 reforms to existing financial regulation.
In the consultation, the government noted: “The overall objective for this reform is to modernise and streamline regulation to the benefit of consumers and business. In practice, this will mean creating a simpler, more focused regulatory regime for consumer credit and modernising consumer credit regulation so that it follows more closely the approaches in other areas of financial services regulation.”
The reform of the CCA will mark the biggest shake-up in consumer credit in generations, according to Myron Jobson, senior personal finance analyst at Interactive Investor.
“Attitudes to credit have change since the Act was introduced half a century ago. The growth in digital lending is happening due to changes in consumer behaviour. Safeguards will likely be updated to account for this trend,” he said.
“It is also important that language around credit is made clearer. The reason many borrowers get into difficulty is because they don’t fully understand the consequences of what they’re taking on.”
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The Treasury is seeking responses to a number of potential changes. These include whether respondents would support the Treasury exploring the amendment of the Financial Conduct Authority’s rule-making powers under FSMA in relation to consumer credit and consumer hire; and whether exemptions for “small agreements” should continue to exist.
The consultation will close on 17 March 2023.
“More needs to be done to cater for consumers who struggle to access credit such as young adults, those who are self-employed, those who have moved to the UK from abroad and those who have previously been in financial difficulty,” Jobson added.
“The need for an up-to-date and robust set of rules governing the credit market has never been more important amid the cost-of-living crunch.”
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