After recent figures showing yet more growth in consumer credit, and last week’s cut in interest rates, it seems a good time to share my thoughts on the piece of legislation that underpins much of the borrowing that takes place in the UK.
Since responsibility for the regulation of consumer credit moved from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA) two years ago, the FCA has had some high profile successes in tackling this new brief – not least its intervention in the high cost credit market through the payday loan cap.
Some of its other work, of course, is less headline-grabbing, but every bit as important. In no area is this more true than its review of the Consumer Credit Act (CCA).
This review came about during the transfer of consumer credit from the OFT, at which point the Treasury required the FCA to carry out a review of whether to keep the remaining provisions of the CCA or replace these with FCA rules. The review will report back by April 2019, and is a hugely significant piece of work.
Why this matters
This debate may seem dry, but has important consumer protection issues at its heart – and here at the Trust we have been putting forward our views, based on the experiences of our clients at National Debtline.
We are reluctant to lose the consumer rights contained in the CCA protections without ensuring that there are robust protections in their place. Any proposals for change should offer strong protection for consumers so that there is no increase in consumer detriment or reduction in individual rights of redress as a result.
For example, in many cases CCA provisions give better protections than the Financial Services and Markets Act 2000 (FSMA) as they provide very real individual sanctions that a consumer can exercise, by going to court or putting forward a defence to action based on the CCA. This is in direct contrast to a ‘presumed right’ to take private legal action under FSMA. This does not result in redress for the individual consumer who is directly affected by a lender’s action. A complaint to the Financial Ombudsman Service does not offer the same swift legal protection as an application to court.
For example, if a lender takes court action to repossess a car on a hire purchase agreement, the consumer can apply for a time order in court using the CCA. This effectively reschedules payments to an affordable amount and suspends repossession. Without time order provisions, would the court be able to make such an order or would the consumer lose the car?
More generally, we are concerned that the FCA should not rush to remove and simplify regulation without extensive research and evidence that the regulations in question are not providing benefits to consumers. The key emphasis should be on retaining and ensuring consumer protections, rather than easing the regulatory burdens on firms.
What could the FCA be doing instead?
We have replied to the recent FCA consultation and our full response can be found here.
We suggest that there may be more urgent consumer issues the FCA could tackle rather than concentrating on a root and branch reform of the CCA. In our view, time would be better spent looking at enhancing regulatory protection in the following areas:
- Providing a system of redress for customers who lose money when a debt management company is refused authorisation or collapses
- Changing the rules to prohibit the “full and final settlement” model of debt advice (see my recent blog on this here)
- Resolving the regulatory confusion over the regulation of insolvency practitioners which is affecting the advice given to people in debt (my thoughts on this here)
- Taking action on ‘log book loan’ companies that offer bills of sale agreements
- Putting in place much more stringent rules on guarantor lending
- Direct regulation of lead generation companies operating in the debt sector and a crackdown on misleading websites
- Prohibiting unsolicited real-time financial promotions e.g. cold calling and messaging for credit broking and debt “advice”
- Looking at reductions in fees, charges and interest rates on authorised and unauthorised overdrafts
This is quite a wish-list – but it illustrates the far more pressing regulatory issues that we believe need to be resolved for the benefit of people in financial difficulty.
We will be continuing to work with the FCA to make the case for action on these issues – and to ensure that its mandated review of the CCA does not inadvertently lead to weakened protections for the consumer.