WADA responds to proposals to reform the Consumer Credit Act
WADA and the Centre for Responsible Credit have today submitted a joint response to Government’s proposals to reform the Consumer Act 1974.
In its consultation document, HM Treasury indicated a desire to replace many of the statutory protections contained in the Consumer Credit Act with Financial Conduct Authority rules. HM Treasury argue that this would create a more agile regulatory framework - allowing rules to be amended in line with developing lending practices and business models. However, there are many statutory protections for consumers which could be lost in this process, and we have little confidence that the FCA would enforce its rules effectively.
For example, in November 2022, the FCA undertook a review of how well consumer credit lenders were complying with its requirements to support customers in financial difficulty. However, it only undertook a detailed assessment of 65 firms in a market of 3,500. Whilst those firms that were assessed were, in many cases, subsequently forced to improve their practice, the vast majority of lenders received nothing more than a letter asking them to learn and implement the lessons from the review. This approach to enforcement is clearly inadequate to protect consumers, but reflects the lack of resources that the FCA has to intensively supervise consumer credit lenders.
But there is an important principle at stake too. Unless consumer rights are contained in legislation then they have no redress through the courts. For example, Time Orders provide an important backstop to the FCA rules concerning forbearance - allowing courts to vary consumer credit contracts - including by reducing the interest rate. FCA rules regarding forbearance only require that lenders consider reducing the interest rate, and it is important that borrowers can apply to court for this if they unreasonably refuse to do so.
The consultation document makes it clear that if these types of statutory rights for consumers are removed then the FCA would not easily be able to replicate them within its rules. Equally, the FCA could erode protections for consumers without Parliament being consulted.
We do recognise that there are some areas of the Act which could be transferred to FCA rules - such as requirements for pre-contractual information - so that these could be more regularly updated. However, given the FCA’s poor enforcement record it is important that there remains a statutory sanction that contracts be rendered unenforceable (at least without the approval of the courts) if those rules are breached.