FCA publishes interim report on its review of the retained provisions of the Consumer Credit Act 1974

The FCA took over responsibility for regulating Consumer Credit in April 2014. As part of the transfer, Parliament repealed some provisions under the Consumer Credit Act 1974 ("CCA") and some were replaced by FCA rules. The FCA is now required to undertake a review of the remaining provisions and report to the HM Treasury by 1 April 2019. The FCA confirms that this interim report sets out its initial views and is not intended to be a draft of the final report.

Basis for review

The review must consider whether the repeal or replacement of the CCA provisions would adversely affect the appropriate degree of protection for consumers. The FCA refers to this as ‘the statutory question’. The FCA has emphasised that while the FCA can offer stronger regulation of this market under the Financial Services and Markets Act 2000 ("FSMA") suite of regulatory powers, it is crucial to recognise the substantive rights and protections afforded to consumers under the CCA provisions (such as, unenforceability of contracts, extension of liabilities to non-authorised persons and other self-policing sanctions). FCA's regulatory powers in these scenarios are limited.

Key themes

The FCA set three key themes for the review:

• Rights and protections;
• Information requirements; and
• Sanctions.

In doing so, the FCA paid particular attention to the CCA provisions that:

• may not be working well for consumers;
• may not be functioning in line with the original policy intention; or
• may be disproportionately burdensome for firms when compared to the benefit in terms of consumer protection. 

Rights and protections 

This relates to the CCA provisions giving rights and/or protections to customers under credit and/or hire agreements. In relation to most of these provisions the FCA has taken the following initial views:

• The protections offered by these provisions continue to be relevant, and should remain in some form, either in legislation or FCA rules.
• It would not be possible to replicate these CCA provisions under the FCA's current rule-making powers and therefore should be retained in the CCA, except in certain cases where this would not adversely affect the appropriate degree of consumer protection. For example, section 155 relating to refund of credit brokerage fees and section 66 relating to mis-use of credit tokens, which is similar to the provisions already in force under the Payment Services Regulations 2017.
• There are issues with some CCA provisions, such as sections 75 and 75A, which will require further consideration as to whether the provision remains in legislation or as a rule, to ensure consumer protection without imposing undue burdens on firms.

Information requirements 

This relates to the CCA provisions relating to requirements on creditors and owners in relation to:

• Pre and post-contractual information;
• The form and content of agreements; and
• Providing copy documents.

The FCA's starting point in relation to these provisions is that, in principle, they should not be repealed without replacement. The FCA's initial views are:

• Broadly these CCA provisions could be replaced either in full or in part by FCA rules. This would make easier for firms to access and understand the information requirements and will make future amendments to rules simpler, given the ever evolving nature of customer needs in this area. 
• However to ensure consumer protection the associated sanctions under some of these CCA provisions, including unenforceability, should be retained under CCA. Consequential changes need to be made to those provisions to apply them to breaches of FCA rules.
• There are a number of issues in relation to information requirements and the level of prescription in the CCA, which will require further consideration.  

Sanctions

These mainly relate to:

• Unenforceability of agreement (without a court order or during breach);
• Disentitlement to interest and default sums; and
• Criminal offences.

The FCA's initial views in relation to these provisions are:

• It would not be possible to replicate or replace these sanctions, as the ‘self-policing’ and 'deterrent' nature of these automatic sanctions contributes significantly to ensuring appropriate firm conduct in the consumer credit market and protecting consumers. For example, in general terms, breach of an FCA rule cannot render transactions void or unenforceable and does not incur criminal liability (with some limited exceptions). In the absence of unenforceability, firms may perceive that the risks associated with non-compliance are lower, and may adopt a more reactive approach rather than proactively ensuring processes meet relevant requirements.
• It would not be sufficient to rely on the FCA's disciplinary and restitutionary powers and the private right of action under FSMA as a substitute for the CCA sanctions. Therefore the CCA sanction provisions should be retained.  
• Application of the current sanctions may be disproportionate in some cases, in particular in relation to disentitlement to interest and default sums, and should be limited to breaches which are likely to cause material harm to consumers, in particular, the more vulnerable or those in financial difficulties.
• It would not be possible to replicate the criminal offences under the CCA. However these offences might no longer be needed given the FSMA regulatory toolkit and therefore should be abolished. FCA will, however, consider this point further.

Next steps from the FCA

FCA is inviting comments on this interim report by 2 November 2018. It is keen to gather a wide range of views and plans to engage with stakeholders through roundtable meetings in September and October.