On 2 August 2018, the FCA published its Interim Report in its Consumer Credit Review (Discussion Paper DP18/7).
The FCA took over regulation of consumer credit on 1 April 2014 and, at that point, a number of provisions which had previously been contained in the the Consumer Credit Act 1974 (“the CCA”) and associated Regulations were replaced with FCA rules. Nevertheless, many provisions remained in the CCA and the FCA is required by statute to review those retained provisions and report to HM Treasury by 1 April 2019. The review must consider in particular whether the repeal of CCA provisions would adversely affect the appropriate degree of protection for consumers. This is referred to by the FCA as “the statutory question”.
The Interim Report was prepared following an analysis of feedback received following the Call for Input published in February 2016.
The Interim Report does not set out detailed proposals but indicates the FCA’s thinking and the “direction of travel”. Some of the interesting points which can be drawn out of the review include:
- The FCA has assumed that, irrespective of the UK’s impeding exit from the European Union, it will not be possible to make substantive changes to the provisions implementing the EU Consumer Credit Directive at this time;
- The FCA’s initial view is that the rights and protections afforded to consumers under the CCA should be retained (either in primary legislation or as equivalent FCA rules where appropriate);
- Nevertheless, in the FCA’s initial opinion, certain of the rights provided to consumers, including the right under section 75 CCA to bring a claim against the creditor for a breach of contract or misrepresentation by a supplier (connected lender liability), should be reviewed to ensure that “the provisions continue to provide an appropriate level of consumer protection without imposing disproportionate burdens on firms”;
- In respect of provisions governing information requirements, the FCA is keen to move these into FCA rules (at least in part because this will allow for more efficient amendment) but acknowledges that this could result in an inappropriate loss of consumer protection;
- For example, the unenforceability consequence in the CCA could not currently by replicated in FCA rules;
- The FCA suggests that one option would be to move the substantive detail of the information requirements into FCA rules but retain the sanctions in the CCA with the appropriate amendments to refer to FCA rules rather than CCA Regulations;
- The FCA recognises that some of the current information requirements are complicated and unclear and it is difficult for firms to know whether they have complied and/or how to properly remedy any breach through corrective notices;
- The FCA acknowledges that currently breach of the information requirements can result in an inappropriate sanction (for example, unenforceability and a disentitlement in interest for a technical breach which has caused no consumer detriment);
- The FCA suggests that this could be remedied by limiting the draconian sanctions to cases where there has been a substantive failure which are likely to cause material harm to consumer; other more minor breaches would give rise to potential disciplinary intervention or civil action but would not result in unenforceability or disentitlement.
The full Interim Report can be read here: FCA Consumer Credit review
The deadline for responses is 2 November 2018.