The Financial Inclusion and Markets Centre (FIMC) has submitted a response to HM Treasury’s Phase 1 consultation on the reform of the Consumer Credit Act (CCA). This is a very important consultation. Even though consumer credit is now regulated by the Financial Conduct Authority (FCA), the primary legislation still contains some very important consumer protection measures which are at risk of being lost as a result of the reforms. We are concerned the Government has sided with the industry on removing important sanctions from the CCA.
The Government should also take the opportunity provided by the reforms to improve the responsiveness of the legislative and regulatory system to emerging harm caused by financial innovation. The length of time taken to bring buy now, pay later (BNPL) within the FCA’s remit is a case in point. It is also a good opportunity to address issues relating to county court judgments (CCJs) held on the public Register especially to protect victim-survivors of economic abuse and coerced debt.
FIMC submission can be found here: HMT CCA phase 1 FIMC submission 0725
Summary of FIMC submission
We very much support the government’s overall aim to update the system of legislation and regulation relating to consumer credit. We agree with the general thrust of the government’s approach to move, where appropriate, core elements of consumer protection from legislation to regulation. We agree that regulation can be more flexible and agile than legislation. The Consumer Duty, if robustly supervised and enforced with enhanced regulatory transparency, could be effective.[1]
However, there are some very important specific aspects of the consumer protection regime which should be left in legislation either because those aspects are not possible to replicate in regulation or the deterrence effect supplied by the threat of legal action. We are very concerned that the Government has sided with industry on sanctions.
The secondary growth and competitiveness objective (which is now a de facto primary objective) is putting pressure on the FCA to promote the interests of the financial services industry. We have seen this on the pensions and investment side with the proposals for ‘targeted support’ which represents a weakening of consumer protection to enable firms to sell higher risk investment products to consumers with liability for redress reduced. We are concerned that the FCA will also come under pressure to adopt a weaker approach to consumer protection in consumer credit based on the misguided view that this will promote the growth and competitiveness of consumer credit markets and, in turn, help promote economic growth. In this new pro-growth environment, the removal of sanctions as a disciplining force on the consumer credit market is risky.
More generally, we are concerned that the current regulatory regime and approach is not agile enough to protect consumers from financial ‘innovation’ generally but particularly at the intersection of finance and technology (especially now with the increased use of AI) and from the harms caused by embedded finance. We have a system which relies on government legislating new activities within the FCA’s perimeter followed by what can be a long period when the FCA consults on regulations, rules, and guidance. Buy now, pay later is a case in point. The proposed reforms seem like a missed opportunity to make the regulatory system more responsive to and effective at dealing with the harmful effects of financial innovation.
The CCA reform is also an opportunity to improve the data held on the Register of Judgments, Orders, and Fines to promote fairer, more responsible consumer credit markets and to protect vulnerable consumers from harm. There are 5.4 million judgments on the Register.[2] It is estimated that there are 4.6 million individuals and small businesses with at least one CCJ outstanding on the Register.[3] The data held on the Register can have a significant impact on access to credit and consumer financial wellbeing generally.
Yet, only 12% of CCJs are marked as ‘satisfied’.[4] We argue that, when a debt has been settled, the claimant (the creditor) should be required to send proof of payment to the courts rather than the defendant as is the case now. This would not be an onerous requirement for creditor firms but could make a difference to consumers’ credit files and help repair their finances. In addition, it seems against the interests of natural justice that the fact that a person has actually settled an outstanding debt is not acknowledged in the public register and other data sets used by the market. Influential market actors such as credit reference agencies should also have to reflect this in their credit scoring algorithms.
We are particularly concerned about victims and survivors of economic abuse and coerced debt having county court judgments (CCJs) registered against them. We would urge the Government to include provisions in any revised regime requiring the removal of CCJs resulting from economic abuse/coerced debt from the Register. More details can be found in Q7, 8, and 9 of the consultation response.
[1] See: FCA consultation on a new Consumer Duty | The Financial Inclusion Centre
[3] See: The Data That Matters Note, for disclosure, as well as Co-Director of FIMC, I am also Chair of Registry Trust which operates the Register of Judgments on behalf of the Ministry of Justice.
[4] It is not widely known that for a judgment to be marked as satisfied, the outstanding debt has to be settled and the defendant has to send proof of payment sent to the courts. For a number of reasons, the defendant may neglect to send this proof of payment.