Reform of the Consumer Credit Act – Phase 1

On 19 May 2025, HM Treasury released a consultation paper proposing reform of the Consumer Credit Act. In this paper, the Government confirmed its commitment to delivering an overhaul of the consumer credit regime, intending to move “at pace” to implement “real change” in the sector and ensure that the regime is fit “for the next 50 years of change and beyond”. A less cumbersome and more modern regime lies ahead. The consultation proposals include a shift to FCA-led regulation, simplification of information requirements (pre-contractual, post-contractual and events driven), removal of automatic CCA sanctions (including unenforceability and disentitlement of interest and default sums) and increased flexibility for electronic disclosure. The final shape of the regime will be dependent upon the outcomes of the Government’s consultations and FCA consultation on new rules expected in due course.

Annex B to the consultation paper provides a full list of provisions that the Government proposes to repeal at this stage. 

“…it is clear that stakeholders recognise that this is a once in a generation opportunity to design a new regulatory regime for consumer credit and they appreciate the complexity and size of the task ahead….”

A Phased Approach

Due to the scale and complexity of CCA reform, the Government is splitting reform of the CCA into two consultation phases. The first consultation for Phase 1, released on 19 May 2025 seeks views on the proposals in relation to information requirements, sanctions and criminal offences. The consultation closes on 21 July 2025.  In the second phase the Government intends to address the scope of regulation and rights and protections under the CCA (e.g. consumer rights (Section 75 joint liability) and key definitions such as types of credit agreements, regulated credit scope). Owing to overlap between the phases, it is the Government’s’ aim that both phases of the policy work are carried out prior to implementation. Consultation on new rules from the FCA will also be required. 

A key question arising from this consultation paper is the approach to transition for existing agreements which will be explored further in Phase 2. It is not clear whether, specific CCA provisions will remain in force for pre-existing agreements or be covered elsewhere (e.g., in FCA rules or other legislation). It is also not clear whether breaches under the current regime that occur before implementation of the new regime will require remediation or redress under the updated framework.

Below are some of the other key-takeaways for the Phase 1 consultation:

Overall vision for reform
The Government wants to create a modern, outcomes-focused, flexible, and proportionate regulatory framework aligned with FCA principles. This involves transferring appropriate parts of the CCA to the FCA Handbook (in particular, the Consumer Credit Sourcebook (CONC)) and retaining or amending legislative provisions only where necessary to ensure robust consumer protection. It is not expected that the FCA will replicate existing CCA provisions. Instead it will consider what appropriate requirements should be in place, considering its statutory object objectives and its existing principles and rules. This should pave the way for a more flexible regime which is more outcomes based and less prescriptive, “allowing firms to tailor products and consumer journeys to achieve good consumer outcomes” in line with the broader Consumer Duty.

Five key principles will set the framework for the reform process:

• Proportionality - to ensure that levels of consumer protection are appropriate whilst balancing the need to ensure that the burdens on business are proportionate.
• Alignment - to ensure broad alignment of consumer credit regulation with the substance of current financial services regulation, tailoring as needed in specific areas.
• Forward-looking - to ensure adaptability to future methods of delivering credit to consumers.
• Deliverability - noting that significant change may be required to internal processes so adequate time will be given for changes to take effect.
• Simplification - the creation of a regulatory regime that simplifies and modernises ambiguous technical terms used in the CCA.

Information requirements to be repealed

The Government intends to repeal all CCA information provisions (e.g. pre-contractual information, post-contractual information (e.g. statements) and arrears and default notices (e.g. NOSIAs and notice of default sums)) and enable the FCA to create more flexible rules within CONC guided by outcomes-based principles under the FCA Consumer Duty. The Government has stated therefore that this is not expected to be a simple copy and paste of requirements from legislation into FCA rules; the FCA will undertake a review and consult on specific rules which it considers should be required to apply alongside the Consumer Duty. Requirements relating to small agreements (section 17), multiple agreements (section 18), explicit consent for electronic delivery (s176A CCA which limits digital communication) will be removed. The consultation also paves the way for the FCA to consider a more pragmatic approach for “gone away” consumers.  In respect of each of these the FCA will consider further and consult on any changes necessary under its rules. 

Unenforceability/CCA sanctions

Listening to stakeholder feedback, the consultation recognises that existing sanctions which mean that an agreement may be unenforceable are disproportionate in the current era, and within a regulatory regime for financial services which contains a range of consumer rights and protections, as well as an extensive FCA supervisory and enforcement toolkit, and other tools such as the Financial Ombudsman Service (FOS) and court protections.  As such, the Government proposes to remove automatic sanctions and shift responsibilities to the FCA’s regulatory framework, ensuring reforms align with a principles-based, outcomes-focused regulatory approach. Firms would remain obligated under FCA rules (e.g., the Consumer Duty) to address breaches and provide redress where harm occurs.

Criminal sanctions 

The government is considering whether to retain or repeal some or all criminal offences in the CCA. It may take a hybrid approach e.g. retaining some offences only in key areas, such as protecting minors and canvassing off trade premises, where necessary to protect vulnerable consumers and send a strong deterrent message. Feedback from stakeholders will guide the final approach.

Focus of Phase 2

A number of the most challenging CCA provisions for lenders are left to consideration under phase 2. These include: 

• Rights and Protections: the Government plans to review each of the various consumer rights and protections enshrined in the CCA, such as Section 75 (joint supplier-lender liability for a misrepresentation or breach of contract in relation to goods or services financed by particular credit agreements (e.g. credit cards and point of sale loans) and Section 140A (unfair relationships), on a case by case basis to determine whether these should remain in legislation or, where possible, be replicated in the Financial Conduct Authority (FCA) rulebook. 
• Scope and Key Definitions: the Government will evaluate the definitions and scope of the regulated consumer credit regime to reflect market developments, including reviewing concepts like "credit agreements" and addressing the regulatory perimeter for areas like consumer hire and business lending to sole traders and small partnerships.
• Consequential Changes: potential amendments to other legislation, such as the Financial Services and Markets Act 2000 (Regulated Activities Order 2001), the Payment Services Regulation 2017 and the Financial Services (Distance Marketing) Regulations 2004 will be considered.
• Islamic Finance, Green Finance and Technology: these areas are seen as ‘cross-cutting’ areas which will be considered across the Phase 1 and Phase 2 consultations. The Government is considering how a reformed consumer credit regime can remove barriers to enable Sharia compliant finance and the rollout of green finance products as part of the Government’s wider net zero green agenda. On technology, Government is keen to build flexibility into the consumer credit regime to help support future technological advancements and key areas to review include digital and electronic communications, electronic signatures and digital contracts, and more flexible, less prescriptive consumer journeys and communications. 
   

Next steps
The Phase 1 consultation closes on 21st of July 2025, following which HMT will consider the responses received. The Government will issue a response to this Phase 1 consultation and then aims to publish its Phase 2 consultation in due course thereafter.  

Resources
Find HMT’s Phase 1 consultation published on 19 May 2025 here
Reform has long been on the cards – indeed it has been expected since the FCA took over supervision of regulated credit back in April 2014. In 2022, the previous government issued its own consultation, followed by a response to that consultation in July 2023 (see our previous blog posts here and here).