Interim Report published on retained provisions of the Consumer Credit Act 1974 (CCA)

On Thursday 2 August 2018, the FCA published its Discussion Paper 18/7: Review of retained provisions of the Consumer Credit Act: Interim Report (DP18/7).

The FCA is required to review the Consumer Credit Act 1974 (CCA) and to report to HM Treasury by 1 April 2019. The review must consider whether the repeal of CCA provisions would adversely affect the appropriate degree of protection for consumers. In particular the review must consider:

• which CCA provisions could be replaced by FCA rules or guidance under the Financial Services and Markets Act 2000; and
• the principle that a burden or restriction which is imposed in relation to the carrying on of an activity should be proportionate to the benefits.

The FCA’s interim report sets out their initial view and invites comments, it is not intended to be a draft of their final report.  While the report is an interesting read and provides a good overview of the background to the Consumer Credit Act, the CCD implementation, the suggestions and comments in the report are fairly high level and it is clear that there is still much work to be done. The report indicates, in broad terms, the FCA’s direction of thinking on the statutory question and related issues.  Accordingly the FCA has invited comments and intends to engage more closely with stakeholders. The FCA has also stated that while they may include recommendations in their final report, decisions about the future of the CCA provisions will fall to the Government.

The FCA has approached the review through three inter-related themes:

• rights and protections;
• information requirements; and
• sanctions.

The FCA’s initial thinking is as follows:

• rights and protections (Chapter 5): the protections offered by the CCA provisions continue in the main to be relevant, and should remain in some form, either in legislation or the FCA rules. For most provisions in this theme, the view is that they could not be repealed and replicated by FCA regulation under the current rules – making powers without adversely affecting the appropriate degree of consumer protection. They should, therefore, be retained in the CCA.  A full list of the key provisions within this theme are set out on page 27 of DP18/7;
• information requirements (Chapter 6): the FCA’s preliminary view is that the substantive information disclosure obligations, which are set out in the CCA, continue to provide important consumer protection. They see that various regulations could in principle be replaced by FCA rules, but also consider that the resulting loss of the associated sanctions, including unenforceability, would affect the appropriate degree of consumer protection. It would not be possible to replicate or replace the sanctions of unenforceability or disentitlement to interest and default sums under the FCA’s general rule-making power.  They suggest that the substantive information disclosure obligations, could where appropriate, be moved into FCA rules but still remain subject to the CCA sanctions.  A full list of the key provisions within this theme are set out on page 44 of DP18/7; and
• sanctions (including enforceability) (Chapter 7): the FCA has taken the stance that it would not be possible to replicate or replace the sanctions of unenforceability or disentitlement to interest and default sums under the FCA’s general rule-making power. The initial view taken by the FCA is that the sanctions should be retained in legislation. They also have expressed the view that the scope of application of the sanctions for non-compliance be more focussed on breaches which are likely to cause material harm to consumers, in particular, the more vulnerable or those in financial difficulties. The FCA has also stated that they see value in clarifying, in legislation, the case law on the meaning of ‘enforcement’ to put interpretational issues beyond doubt. A full list of the key provisions within this theme is set out in chapter 7 of DP18/7.

The deadline for comments on DP18/7 is 2 November 2018. The FCA plans to gather a wide range of views and engage with stakeholders through roundtable meetings in September and October and also intends to conduct further research, as they work towards their final report to the Treasury before 1 April 2019.

It is useful to also note that on 16 July 2018, the Government published the Consumer Credit (Amendment) (EU Exit) Regulations 2018, under the European Union (Withdrawal) Act 2018. The Regulations amend the CCA and related legislation to ensure the legislation functions effectively when the UK leaves the European Union (EU). The UK and the EU have reached agreement on the terms of an implementation period following the UK’s withdrawal from the EU. This is intended to operate until the end of 2020 and EU law would remain applicable in the UK during this time. However, the implementation period forms part of the withdrawal agreement, which is subject to further negotiations between the UK and EU before it is finalised. The FCA have therefore assumed that substantive changes to CCA provisions implementing Consumer Credit Directive (CCD) will not be possible at the current time.