UK Commits to Overhaul of the Consumer Credit Act

The UK government has committed to overhauling the consumer credit act legislation covering credit cards and personal loans, as the Financial Conduct Authority called on lenders to provide greater support for customers struggling as inflation soars.

In a statement on Thursday, economic secretary to the Treasury John Glen said the reforms would allow regulation to adapt with innovation in the space. “The Consumer Credit Act has been in place for almost 50 years – and it needs to be reformed to keep pace with the modern world,” he said. “We want to create a regulatory regime that fosters innovation but also maintains high levels of consumer protection,” he added.

Ministers said the reforms will allow lenders to offer a “wider range of finance” whilst maintaining high levels of consumer protection, allowing firms to more easily provide credit for emerging and new technologies like electric cars.

Alex Marsh, UK head of Swedish payments company Klarna, which became Europe’s most valuable private fintech last June, welcomed the news. “By reforming the Act, the Treasury has the opportunity [to] make the regulation of consumer credit more focused on enabling competition and better consumer outcomes, not protecting banks,” he said. 

Also on Thursday, the FCA wrote letters to more than 3,500 lenders across the UK, including commercial banks and providers of “buy now, pay later” services, a highly popular form of short-term credit. The regulator wrote that it was vital that lenders treated borrowers fairly and provided an appropriate level of care and support to customers depending on their individual circumstances.

A consultation over how to reform the Consumer Credit Act is now expected to be published by the end of 2022, inviting views on the proposed reforms from across the credit industry. The measures are expected to cut red tape and enable the FCA to act faster on regulating new forms of credit and simplify technical terms for consumer protection.

https://www.gov.uk/government/news/uk-commits-to-reform-of-the-consumer-credit-act

https://www.fca.org.uk/news/press-releases/fca-tells-lenders-support-consumers-struggling-cost-living

https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/june-2022