Consumer Credit Act reform - Phase 1 Consultation

On 19 May 2025, HM Treasury (HMT) published its Phase 1 Consultation on the proposed reform of the Consumer Credit Act 1974 (CCA), marking a significant step toward modernising the UK's consumer credit regulatory framework. This consultation follows the government's June 2022 announcement of its intention to reform the CCA and is the first of a two-phase consultation process aimed at creating a more proportionate, aligned, forward-looking and simplified regulatory regime. 

The case for reform 

In 2014, consumer credit regulation was moved into the wider financial services regime under the Financial Services and Markets Act 2000 (FSMA), with regulatory responsibility moving from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA). The current consumer credit regime, governing the UK's £200 billion non-mortgage consumer lending market, is fragmented between FCA rules under FSMA and provisions under the CCA. 

Although the CCA continues to provide important protections, it has not kept up with the pace of technological developments and digital innovation. Reform has been considered for some time, notably in HMT's Reforming the CCA consultation paper (December 2022), which was published as part of the Edinburgh Reforms. This paper referred to several developments that the reform would take into account, namely the FCA's Retained Provisions Report (March 2019), the Woolard Review (February 2021), the FCA's Consumer Duty (July 2023) and the FCA's Secondary International Competitiveness and Growth Objective (August 2023).

In its 2022 consultation paper, the government set out 5 principles to guide CCA reform:

• Proportionate - ensuring appropriate consumer protection with proportionate burdens on business.
• Aligned - aligning with broader financial services regulation under FSMA, where Parliament sets the overarching approach, HMT establishes the regulatory perimeter, and the FCA determines specific rules and requirements.
• Forward-looking - creating a regime adaptable to future credit delivery methods.
• Deliverable - ensuring practicality for the FCA and industry to implement.
• Simplified - modernising technical terms to increase clarity.

The way forward

In this latest consultation paper, HMT has confirmed that it intends to shift away from the CCA's model of regulation to a more principles and outcomes-based regime under the FCA. The consultation identifies the following key concerns with the CCA:

• Prescriptive, confusing and duplicative requirements: for example, excessive disclosure or prescription requirements that can confuse and lead to poor outcomes for consumers.
• Inflexible framework: hindering the development of new products or the delivery of optimal outcomes, particularly in the context of digital credit.
• Complex structure: requirements are spread across multiple sources with overlapping obligations.
• Disproportionate sanctions: some sanctions for non-compliance focus on technical breaches rather than ensuring good consumer outcomes.

Phase 1 of the consultation outlines the government's overall vision and proposals in relation to information requirements, sanctions, and criminal offences.

Phase 2 will cover the scope of regulation, definitions, rights and protections, and consequential changes to other legislation. The government's preferred approach is to use one primary legislative vehicle for both Phases 1 and 2, subject to parliamentary time. There will likely be transitional periods to allow the industry to prepare and adapt to the new rules.

Source: Consumer Credit Act reform – Phase 1 Consultation

Key proposals in Phase 1

Information requirements

HMT proposes to repeal all information requirements under the CCA and accompanying regulations, including:

• Pre-contract information (Sections 17, 18, 55-55C, 60-65, 74).
• Post-contract information (Sections 76-80, 82, 85, 97-98A, 103, 105, 176-176A).
• Arrears, default and forbearance information (Sections 86A-F, 87-89).

HMT proposes to repeal the following technical aspects of CCA provisions relating to information requirements:

The FCA may consult on any changes it considers necessary to its rules on the above technical matters. The FCA proposes to develop replacement rules, leveraging its ability to be more adaptable to technology developments and outcomes-focused in line with the Consumer Duty.

Sanctions

The consultation proposes to remove automatic statutory sanctions that currently include:

• Unenforceability without a court order. Firms are prevented from enforcing agreements without first applying for a court order which allows them to take enforcement action.
• Unenforceability until breach remedied. Firms are prevented from enforcing an agreement against a consumer until it has properly remedied the breach.
• Disentitlement to interest and default sums. For certain breaches, such as non-compliant arrears notices, an additional sanction currently applies which results in the consumer having no liability to pay interest or default sums from the period of non-compliance to the date of remedy. 

These deliberately punitive regulations were originally designed for a self-governing regime under the OFT. The government considers that adequate consumer protections are already in place through the Financial Ombudsman Service, the FCA and the Consumer Duty principle, and the usual court process. Stakeholders generally agree that automatic sanctions result in disproportionate costs, poor consumer outcomes, legal uncertainty and provide barriers to innovation. The government considers this contrary to the prevailing direction of the principles and outcomes-based approach the FCA takes towards regulation and finds that automatic sanctions, ultimately, provide little practical benefit to consumers. 

Criminal offences

HMT is considering whether it is necessary to retain some or all of the criminal offences in the CCA, or whether they can all be repealed. Relevant offences include those related to canvassing off trade premises (Sections 48-49), circulars to minors (Section 50), credit reference agency disclosures (Sections 157-160), pawnbroking (Sections 114 and 119) and debtor information about goods (Section 80).

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 FCA, in its 2019 report, suggested that the criminal offences in the CCA are no longer needed given the FSMA regulatory toolkit. HMT reasons that the FCA could provide additional rules for authorised firms, while unauthorised firms would be in breach of Section 19 FSMA (the general prohibition), even if all CCA criminal provisions were repealed. 

Phase 2 preview

HMT is not yet in a position to set out its detailed proposals, but has indicated that Phase 2 will focus on:

• Rights and protections, including Section 75 (connected lender liability) and Section 140A (unfair relationships). The government will consider whether the CCA's consumer rights and protections could be delivered by the FCA Handbook, or whether they will need to be retained or updated in legislation.
• Scope and key definitions of the regulation. Policy work is needed to determine the scope of the regulated credit regime, particularly on consumer hire and business lending to sole traders and partnerships. HMT will also consider whether the definitions in the CCA remain fit for purpose. 
• Consequential changes to other legislation. For example, the government will consider whether the Regulated Activities Order under FSMA, the Payment Services Regulations 2017 and the Financial Services (Distance Marketing) Regulations 2004 require changes to ensure compatibility with the reforms. 

Unlike Phase 1, many provisions covered in Phase 2 are likely to remain in legislation rather than being repealed or replicated or replaced by FCA rules (Section 75 of the CCA being a noteworthy example). 

Cross-cutting themes for Phase 2 include:

• Islamic Finance - removing barriers to Sharia-compliant finance.
• Green Finance - supporting environmentally sustainable products while maintaining consumer protection.
• Technology - future-proofing the regime to support innovation.

Next steps

Stakeholders are invited to provide responses to the questions listed in Annex A of the consultation by 21 July 2025. The government will then consider the feedback it receives and issue a response to the consultation. According to the regulatory initiatives grid, it aims to publish a further consultation on Phase 2 of CCA Reform in Q1 2016.

Conclusion

While the consultation proposes the most significant overhaul of consumer credit regulation since the FCA assumed responsibility for it in 2014, much will depend on the rules and guidance the FCA implements to give effect to this new regime. 

Moving from a prescriptive, legislation-based approach to a principles-based regime is likely to be welcomed by the majority of stakeholders. This will put an end to decades of painstaking checking of full stops in pre-contractual information and sleepless nights pondering whether purely technical errors, such as accidentally putting a decimal point in the wrong place in notices of sums in arrears (which were probably ignored until looked at by a claims management company), could end up in mass claims that could bankrupt a business. Debates as to whether a PDF or a click through link or a pop-up provide better functionality when dealing with a lengthy document (that few of us ever read on our tiny phone screens) may well become a thing of the past. This is a real opportunity for lenders to take stock of everything that has not worked previously and shape a regime appropriate for the future of lending services in a digital age.

While few will be sad to wave the old regime goodbye, it needs to be acknowledged that lenders already (no doubt through significant investment) have very complex processes, procedures and controls used to comply with the old regime. Becoming compliant with a brand-new principles-based regime will require significant new investment from businesses in terms of money and time. This has to be factored into the timescales for implementation and any transitional provisions, with a phased approach being no doubt necessary. HMT and the FCA should strive to give businesses as much advance notice as possible on direction of travel and take learnings from the implementation of the Consumer Duty. 

While intended to support innovation and reduce regulatory burden, the consultation acknowledges the need to maintain robust consumer protections, particularly for vulnerable groups. As we have seen with the Consumer Duty, a principles-based regime risks inconsistent approaches being taken between providers with varying degrees of protection being offered to consumers. So, the onus will be on the FCA to continuously provide additional and specific guidance on its expectations, as it has been doing with the Consumer Duty.

Help is at hand 

Please don't hesitate to get in touch if you have any questions on the proposed regulatory regime.