UK consumer credit act reform: Phase 1 consultation update

Background and context

The CCA has played a foundational role in UK consumer credit regulation since 1974, applying to a wide range of products including personal loans, credit cards, hire purchase, and high-cost short-term credit. However, the regime is now widely seen as outdated, overly prescriptive, and poorly suited to today’s digital economy.

Reform has been on the agenda for some time. The FCA’s 2019 Retained Provisions Report, the 2021 Woolard Review, and the introduction of the Consumer Duty in 2023 all reflected a growing consensus that the sector needed a modern, more flexible outcomes-based regulatory approach.

The Government intends to repeal many of the remaining provisions of the CCA and associated secondary legislation, replacing them with FCA rules and principles where appropriate. These will be subject to consultation and will be designed to support good consumer outcomes. Some rights that cannot be replicated in FCA rules, particularly those that create third-party obligations or are embedded in case law, may be retained in legislation.

The reform is guided by five principles: proportionality, alignment with wider financial services regulation, forward-looking design, deliverability, and simplification. Following the December 2022 consultation on strategy, Phase 1 focuses on information requirements, sanctions, and criminal offences. Phase 2 will address scope, rights, and protections.

See our previous article on the July 2023 consultation response on strategy here: UK Consumer Credit Act 1974: HM Treasury responds to first stage consultation on reform.

Key proposals

Overall, the Phase 1 consultation marks positive news for lenders. The Government proposes to repeal:

• All pre and post-contract information requirements.
• Sanctions which apply automatically under the CCA such as unenforceability for documentation errors.
• Certain outdated provisions including electronic delivery requirements under s176A. 

Information and post-contract servicing requirements

The Government recognises that the current patchwork of information requirements is complex and does not provide the best consumer outcomes. It sets out that consumer information requirements should be flexible and proportionate and focussed on maximising consumer understanding. 

In light of that, the Government is proposing to repeal all statutory information requirements under the CCA and accompanying regulations. This includes pre-contractual disclosures, agreement requirements and all post-contract servicing (such as statements and notices of variation), as well as arrears and default communications (such as arrears notices and default sum notices). 

This will undoubtedly be welcomed by lenders who are currently required to spend considerable time trying to interpret complex legislation, particularly around arrears notices. However, it’s important to remember that these information requirements will be replaced by FCA rules designed to promote consumer understanding and deliver good outcomes under the Consumer Duty. Interestingly, the Government has commented that it does not expect such rules to be a “copy and paste of requirements from legislation” and that the FCA will consider “to what extent any specific information disclosure requirements are needed in CONC beyond existing rules and… the Consumer Duty”. It may therefore be that the FCA will abandon the prescriptive approach to information requirements in favour of a more outcomes-focussed regime. Although that approach in itself could create new issues. For example, a less prescriptive approach means that lenders can be less certain as to whether their documentation will in fact be compliant, whilst consumers may find that an inconsistent approach is taken by lenders and it becomes more difficult to compare products.

Technical matters

In parallel, a number of outdated or overly rigid provisions would be repealed, including those relating to small agreements, multiple agreements, modifying agreements, and explicit consent to electronic delivery (s176A). Removing s176A is expected to support digital-first communications by allowing firms to rely on consumer preferences rather than formal consent. If so, this will be a particularly welcome change for firms, who have historically struggled to take a uniform approach to delivery of communications as a result of this requirement, particularly in app-based environments.  This may also provide an opportunity for the FCA to align more closely to the Payment Services Regulations 2017 (PSRs), which is generally more straightforward. This would allow lenders to take a consistent approach across a wider range of products rather than needing to invest in bespoke document delivery processes purely for CCA regulated products. 

The proposed repeal of the modifying agreements provisions will also be good news to lenders, who have generally taken great pains to avoid accidentally falling into these provisions. The complex framework frequently leads to unenforceability at present, and often results in firms re-documenting customers rather than risk creating a modifying agreement as a result of a variation, creating considerable regulatory burden and costs. Fortunately, the Government recognises that the complex modifying agreement provisions may no longer be necessary in light of the raft of other consumer protection measures which apply to variations of consumer financial services contracts (including the Consumer Rights Act, CONC, and FCA Guidance). If repealed, firms would be able to agree changes with customers in a much clearer and simpler way. 

Stakeholders generally welcomed the move to a more flexible regime, particularly one that better accommodates digital communication. However, concerns remain about the potential loss of comparability between firms and the erosion of protections for consumers in financial difficulty. The FCA is expected to consult on how key concepts such as “gone away” customers and communication formats will be managed in the new regime.

Sanctions

The Government proposes removing statutory sanctions for non-compliance with information requirements, including unenforceability and automatic disentitlement to interest and charges. These sanctions were introduced in an era of limited regulatory oversight, meaning that such ‘self-policing’ sanctions were considered necessary to maintain an adequate degree of consumer protection. Given the vast modern consumer protection framework, the access to FOS and the more proactive supervisory approach now taken by the FCA, the Government considers that such sanctions may now be disproportionate and unnecessary.   

Under the new model, enforcement action and redress could be imposed by the FCA using its supervisory toolkit, and would be proportionate to actual consumer harm suffered as a result of the breach, unlike the current regime which can create a windfall for customers in the event of minor technical breaches.

Whilst industry groups generally support the removal of automatic sanctions, some consumer groups have expressed concern that doing so could weaken protections by removing a mechanism that operates independently of regulatory intervention. These groups argue that automatic consequences deter non-compliance and provide consumers with direct, court-enforceable rights.

Criminal offences

Several criminal offences remain in the CCA, many dating back to the 1970s. These include:

• Canvassing off trade premises (s48–s49).
• Circulars to minors (s50).
• Credit reference agency offences (s157–s160).
• Pawnbroking and location of goods (s114(2), s119, and s80).

These offences have seen little use in practice. Only one recorded conviction exists under each of s49(2) and s50, both from several decades ago. The Government suggests that, given the expansion of the FCA’s enforcement powers, most of these offences may no longer be necessary. Although questions remain about whether the existence of these offences is a deterrent in itself.

The consultation presents three options:

• Repeal all criminal offences in the CCA.
• Retain all criminal offences in the CCA.
• Retain only those considered essential for protecting vulnerable consumers (e.g. minors or door-to-door canvassing).

The Government is clear that repealing an offence would not condone the underlying behaviour. Instead, enforcement could shift to the FCA, and unauthorised firms could still be prosecuted under FSMA.

Cross-cutting themes

Several broader themes will continue to influence policy across both phases:

• Islamic finance
   The Government is exploring how to remove regulatory barriers to Sharia-compliant credit products, particularly where current disclosure terminology conflicts with Islamic principles.
• Green finance
   As part of its net zero agenda, the Government is considering how to facilitate green finance products. Some firms have raised concerns that provisions such as s75 or the unfair relationship test may create legal or reputational risks when financing newer technologies.
• Technology
   The reforms aim to support more digitally native credit journeys. Key focus areas include digital disclosures, electronic signatures, and enabling firms to use the communication channels consumers actually prefer.
• Public Sector Equality Duty (PSED)
   HM Treasury is required to consider the impact of reforms on individuals with protected characteristics, and this will remain a key part of Phase 2 policy development.

Next steps

The Phase 1 consultation will remain open for nine weeks, closing on 21 July 2025.

If you would like support preparing a response, or assessing how the Phase 1 proposals could affect your business, please don’t hesitate to get in touch.

Looking ahead to Phase 2 and beyond

Phase 1 looks to mark a shift towards a more modern, flexible regulatory regime. However, implementation will take time. The Government has not yet confirmed a timeline, and progress will depend on resolving other key issues, many of which are likely to be tackled in Phase 2. Phase 2 will address some of the most politically and legally sensitive aspects of the regime, including the scope of regulation, key definitions, and core consumer rights such as s75 (connected lender liability) and the unfair relationship provisions (s140A–s140C).

While Phase 1 has focused on removing prescriptive rules, Phase 2 may take a more cautious approach. The Government’s pro-innovation tone may give way to a more measured stance, given the potential operational, legal, and reputational impacts of reforming core protections.

Some rights may not be capable of being replicated in FCA rules and could remain in legislation. The Government has confirmed that decisions will be made on a case-by-case basis, with further consultation to follow.

Key questions for Phase 2 include:

• Consumer rights and protections
   The Government will review whether key consumer rights currently set out in legislation, such as s75 (joint supplier-lender liability) and s140A (the unfair relationship provisions - which have been particularly divisive), should be retained in statute or could be replicated in the FCA rulebook. This includes assessing whether the Consumer Duty and existing FCA enforcement powers could offer equivalent protection.
• Scope and regulatory perimeter
   Policy work is needed to determine the appropriate regulatory treatment of activities currently within the CCA’s scope. This includes a review of whether lending to sole traders and small partnerships, and consumer hire arrangements (such as leases and subscriptions), should remain subject to consumer credit regulation or be addressed through a more tailored regime.
• Key definitions
   The Government will consider whether core definitions within the CCA continue to be fit for purpose. For example, it will examine whether the current distinction between fixed-sum and running-account credit should be replaced with a broader, unified concept of a credit agreement that better reflects evolving credit products.
• Consequential changes to legislation
   As part of the wider reform programme, the Government will consider what changes may be required to related legislation — including the Regulated Activities Order (RAO), the PSRs, and the Financial Services (Distance Marketing) Regulations 2004 — to ensure coherence with the new consumer credit regime.

Approach to legislation and transition 

The Government is considering using one legislative vehicle to deliver both phases – but it’s possible that further secondary legislation will also be needed. 

The timing of the legislative changes will be subject to Parliamentary availability, and the FCA will also need to consult on new rules. Firms may be disappointed to hear that, as a result, actual reform will be a number of years away still.

There will also be appropriate transitional periods to allow the industry to prepare and adapt to the new rules. Key questions remain about whether certain CCA provisions will continue to apply to pre-existing agreements and whether past breaches under the CCA will require remediation under the existing CCA sanctions regime or under the new framework. The Government will comment on this in more detail as part of its work for Phase 2.

As yet, we don’t have any detail around what the FCA regime will look like, or what the FCA is thinking – so there’s not much that firms can do to prepare at this stage. However, this potentially provides firms with the opportunity to approach the FCA with thoughts and ideas on the new regime (including via industry bodies). 

Firms should remain alert to the direction of travel and engage with the consultation process to help shape the future regime. Phase 2 will provide a further opportunity to influence the design of the new framework.

Authored by Sofie Gowran, Liz Greaves, Aine Kelly, Jen Staniforth, and James Black.