Rules that are half a century old are being updated to reflect the modern credit world
The Consumer Credit Act is facing its first major update in more than 50 years. The reform is meant to reflect how people actually use credit today and is expected to have an impact on anyone using credit cards, loans and overdrafts.
The reforms were announced on May 18, with the main change is meant to make information “clearer” for customers so they can better understand their financial options and use credit products with more confidence. It will also give firms “freedom” to develop new products, maintain strong consumer protections and enforcement powers.
Under the new regulations, the information provided to people looking at credit products like credit cards and overdrafts must “genuinely help” them make an informed decision. Vulnerable people who might struggle to understand financial jargon must also be supported better understand under the new rules.
Economic Secretary to the Treasury and City Minister, Rachel Blake said: “People need to be able to make informed choices when applying for and using credit. The Consumer Credit Act was written for a different era – we are creating a flexible regime fit for the digital age.”
The Financial Conduct Authority will also be empowered to fine firms that break the rules through a range of enforcement powers. The new rules will be consumer tested and kept under review so it can keep up with ever-changing products and technologies.
The reform is part of the Financial Services and Markets Bill that was introduced in the King’s Speech. The Consumer Credit Act, which was first passed in 1974, has seen minor updates over the years but the core rules haven’t been able to keep up with digital financial services, according to the Government’s latest update.
The reform has been praised by organisations that help people deal with the consequences of not understanding their credit information.
Peter Tutton, Director of Policy, Research and Public Affairs, StepChange Debt Charity, said: “Our 30 years of experience providing free debt advice has shown us just how important clear and usable information about credit agreements is for consumers.
“What’s more, for those struggling with managing credit repayments, it is vital that consumers can make informed choices about products and know how to seek help when it is required.
“Whilst the Consumer Credit Act contains important and much-needed consumer protections, new steps to move communication requirements into FCA rules allows flexibility and a test and learn approach that will offer better outcomes to consumers and reduce harm around debt.”
Eric Leenders, Managing Director of Personal Finance, UK Finance: “UK Finance welcomes the government’s plans to modernise the Consumer Credit Act.
“Ambitious, forward-looking changes are needed to give consumers clearer, more accessible information, and lenders flexibility to provide new and innovative products. These reforms are an important step towards a simpler, future‑proofed regime with strong consumer protections in an increasingly digital world.”