Government consults on the first stage of reforming the UK consumer credit regime, covering information requirements, sanctions, and criminal offences.
On 19 May 2025, HM Treasury published a Phase 1 consultation on reform of the Consumer Credit Act 1974 (CCA). This publication has been eagerly awaited for some time and helps bring clarity to the direction of travel of CCA reform. This publication comes alongside final proposals for the regulation of the buy-now-pay-later sector (see this Latham blog post).
Roadmap for Reform
The previous government announced plans to reform the CCA as part of the Edinburgh Reforms, indicating that it planned to repeal much of the legislative framework and replace this with FCA rules, as part of an “ambitious overhaul”. The government’s intention was to modernise and rationalise the complex and outdated UK consumer credit regime which has been around in one form or another for over 50 years. Although this project stalled somewhat due to the 2024 general election, the new government seems intent on carrying it forwards and has now laid out a roadmap for reform. The aim is to create a more flexible regime, with foundations in outcomes-based FCA principles and leaning significantly on aspects of the modern regulatory regime such as the Consumer Duty and Senior Managers Regime, rather than being based on rigid and prescriptive statutory requirements.
HM Treasury explains that it intends to repeal much of the CCA (and related secondary legislation), allowing its provisions to be recast (where appropriate) in FCA rules, while recognising that certain provisions will need to remain in legislation (although likely in modified form) if a similar outcome cannot be achieved in FCA rules and important consumer protections which it is desirable to retain would otherwise be lost. As such, this consultation indicates the direction of travel in some areas, but we will need to wait for the FCA consultation on its rules to really understand the true impact of the reforms.
Given the complexity of the subject matter; the government has decided to take a phased approach to consulting on reform. The Phase 1 consultation sets out the government’s overall vision, as well as addressing information requirements, sanctions, and criminal offences. The Phase 2 consultation will address key definitions, scope, rights and protections, transitional provisions (including how to address historic non-compliance), as well as any consequential changes required. The government has dropped the idea that the reform could be implemented in stages and is now proposing that it completes all policy work prior to implementing legislative changes reflecting any reform. It will issue an impact assessment as part of the Phase 2 consultation.
Information Requirements
The CCA regime currently includes highly prescriptive requirements for the information that must be sent to customers throughout the customer journey. HM Treasury acknowledges that these technical documents often do not support customer understanding and, therefore, proposes to repeal all of the CCA’s information disclosure requirements and have them recast in FCA rules. It emphasises that this would not be a copy and paste exercise and that the FCA would undertake a full review of the requirements prior to issuing a consultation on what information requirements the FCA rules will contain. HM Treasury considers this will allow for greater flexibility, ensure the rules can keep pace with technological developments, and enable alignment with the Consumer Duty, including by providing lenders with the freedom to design customer documentation that better reflects the products offered, is easier to understand, and is more likely to ensure good customer outcomes.
HM Treasury is also considering how to address the rules for small agreements (agreements for credit not exceeding £50), modifying agreements, and multiple agreements, where it is likely that we will see a simplification of the current regime.
Sanctions
The CCA contains sanctions for failures to comply with various of the information requirements. Often the sanction is unenforceability of the entire agreement without a court order, or the disapplication of fees and interest for the period of the failing, even for what may be perceived as a relatively minor technical error in the documentation, and even if there is no actual harm to the consumer. HM Treasury notes that the regulatory regime has evolved significantly since the CCA was introduced and there are now a range of other consumer rights and protections in place, a comprehensive FCA supervisory and enforcement toolkit, and the ability for consumers to make complaints to the Financial Ombudsman Service. Therefore, although HM Treasury emphasises that consumer protection remains important, it considers that this can be achieved by different means and that such a punitive approach to documentation errors is no longer warranted.
HM Treasury also highlights that automatic and punitive sanctions would not operate in tandem with the new principles-based approach proposed, as generally such sanctions would need to attach to prescriptive requirements. Further, it would not help to rationalise the regime if the sanctions were to be kept as these could only be kept in legislation, whereas the information requirements they attach to will be recast in FCA rules.
Market participants will no doubt be pleased to see these proposals, as the draconian impact of making documentation errors can be highly problematic for firms operating in this sector, as well as for businesses looking to acquire or invest in UK consumer credit firms.
Criminal Offences
HM Treasury sets out the various criminal offences under the CCA, noting that they have seen few, if any, convictions. These offences also sit at odds with the current financial services regulatory framework, in which criminal offences are relatively rare. Therefore, it is keen to explore whether some or all of these offences (which include behaviours such as canvassing off trade premises and circulation to minors) could be repealed, instead relying on FCA rules and the FCA’s supervisory and enforcement toolkit to provide a suitable deterrent.
Next Steps
The Phase 1 consultation runs until 21 July 2025; a reasonably short consultation period of nine weeks. The Phase 2 consultation is expected in early 2026, and HM Treasury indicates that it intends to provide feedback on Phase 1 before launching the Phase 2 consultation.
The Phase 1 consultation gives a flavour of what will be covered in the Phase 2 consultation. It will examine the scope of the regime, in particular in relation to consumer hire and small business lending, where it appears there may be scope for a narrowing of the regulatory perimeter. It will also explore whether consumer rights and protections such as under section 75 of the CCA and the unfair relationship provisions need to be retained in legislation. However, we do not anticipate a rowing back of these protections.
HM Treasury has not provided further detail as to the overall timing of the reform at this stage, but it is expected to take a number of years to finalise and implement, especially as the FCA will have to consult on its potentially extensive new rules after HM Treasury has settled what will and will not be kept in legislation.
