Reform of the Consumer Credit Act: Phase 1

HM Treasury has released a consultation paper proposing reform of the Consumer Credit Act. The consultation closes on 21 July 2025.

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 depend on the outcomes of the Government’s consultations and FCA consultation on new rules which are 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. 

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.   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 first consultation on Phase 1:

• Proposed vision: 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.
• 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 (section 176A CCA which limits digital communication) will be removed. In respect of each of these the FCA will consider further and consult on any changes necessary under its rules. 
• Unenforceability/CCA sanctions: 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. Existing tools, such as the Financial Ombudsman Service (FOS), FCA principles, and court protections, are considered sufficient to protect consumers without the need for automatic sanctions. 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 the various consumer rights 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) – to determine whether these should remain in legislation or, where possible, be replicated in the FCA rulebook.
  • Scope and Key Definitions: The Government will evaluate the definitions and scope of the regulated consumer credit regime, 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, the 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.