When the FCA took over the regulation of consumer credit from the OFT in 2014, it had a statutory duty to complete a review of the ‘retained provisions’ of the Consumer Credit Act 1974 (the CCA) and report its findings to HM Treasury by 1 April 2019.
The FCA's duty was to review whether the repeal (in whole or in part) of the CCA would "adversely affect the appropriate degree of protection for consumers".
The industry saw this as a golden opportunity for the FCA to add some clarity to a complicated area of law for both lenders and consumers. When the FCA released its Interim Report in summer 2018, many stakeholders provided responses pointing out issues with the current regime and explaining where changes could be made. Much of the focus from the industry was on making sure the FCA did not rush the review, and took its time to put in place a proportionate framework of protections, balancing the responsibility of firms to deliver good customer outcomes, and that of customers for their own actions.
When the FCA's Final Report was released on 25 March 2019 (after some delay) it is fair to say the industry's view was fairly muted. Many thought that, whilst the FCA appeared to have taken on some industry feedback, the report did not go far enough.
So what has the FCA suggested needs to change, and what areas have been overlooked? And even though it is mentioned in the FCA's Business Plan as a "priority" for 2019/2020, where do things go next?
The Final Report largely mirrored the approach the FCA had taken in its Interim Report, and was divided into three themes:
We have set out a summary of the FCA's comments on each below.
The CCA regime ensures consumers receive various rights and protections at all stages of the credit or hire relationship. Those protections include credit brokerage fees, connected lender liability (including Section 75), variation of agreements, default and enforcement protections, credit-tokens, pawnbroking, withdrawal and cancellation rights, early repayment, termination, time orders and unfair relationships (the latter of which has grown significantly in recent years as a result of case-law including Plevin).
Whilst the FCA's view remains that most of these rights and protections should be retained in some form, they have highlighted some areas for further review. These include:
The FCA thinks replacing some of the information requirements with FCA rules would improve the current regime and, in some circumstances, it might be possible to adopt a more principles based, outcomes focused approach. Similarly, the FCA acknowledges that where prescribed wording has to be used, the rules should not be so inflexible to mean the wording is applied in circumstances which are inappropriate or do not make sense. Changes in the level of prescribed wording, and changes to the tone of language might be appropriate in some circumstances (for example, in default notices), might make it easier for customers to engage with firms.
One of the industry's biggest concerns is the impact of varying regulated agreements. Many simply avoid doing so, so as not to have to deal with the problem of modifying agreements. Unfortunately, the FCA is of the view that the provisions around modifying agreements should remain in legislation (with the associated information requirements simply being transferred into FCA rules), although they do acknowledge they are complex, and merit some further consideration.
Disappointingly, the FCA's view was the key sanctions of unenforceability and disentitlement to interest and default sums (which many in the industry feel are disproportionate) should be retained. However, the FCA acknowledged these sanctions are by no means perfect, and indicated the Government should look carefully at these provisions if it does carry out a review. Particularly, the FCA suggested the meaning of "enforcement" should be clarified, and acknowledged that, where sanctions apply but no consumer harm has been suffered, there may be merit in sanctions being applied in a more limited way. However, it is safe to say we have not seen the back of these disproportionate sanctions just yet.
Whilst the Final Report failed to deliver the wholesale changes and improvements the industry was perhaps looking for, the FCA did suggest certain areas "merit some further consideration". So what is next on the agenda for retained provisions?
Whilst it is positive that the work features in the 2019/2020 Business Plan, the question is how much more the FCA will really do. The FCA has answered the statutory question so the burden is now on Government, and HM Treasury, to consider the Final Report and decide what happens next. The crucial issue is whether the Government will dedicate the time and resource it needs to give the "further consideration" the FCA believes it merits. Parliamentary time may not be available for a while, and so it will be important for the FCA to work with the industry to maintain momentum. It will be up to firms, their advisers and trade bodies to do their best to keep the conversation going.
Ultimately, the FCA's recommendations are far from perfect and in many ways do not go far enough. Let's hope the work on retained provisions truly does remain a priority for the FCA (and Government) in the coming year.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2019. Specific advice should be sought for specific cases. For more information see our terms and conditions.