What’s next for lenders as the Consumer Credit Act gets a shake-up? 

The government’s announcement that the Consumer Credit Act will be modernised for the first time in more than 50 years marks a significant milestone for the consumer credit market. First introduced in 1974, the Act has been updated over time, but many of its core rules were written long before digital banking, instant credit decisions, online applications and embedded finance became part of everyday life. 

For lenders, banks and businesses offering finance, that should be a welcome direction of travel, but it also changes the conversation around compliance. A more flexible framework doesn’t mean a softer one. Instead, firms are likely to face greater focus on whether their products are fair, their communications are clear and their customers understand the cost, risks and consequences of borrowing.  

As Financial Services Partner, John Pauley, says: 

After more than 50 years, reform of the Consumer Credit Act is long overdue. The way people borrow, compare products and access finance has changed beyond recognition since the Act first came into force, and the law now needs to catch up with the reality of modern lending. 

“For banks, lenders and businesses offering finance, this should create a more flexible regime that can adapt as technology and customer behaviour change, rather than leaving firms tied to outdated rules. It’s good news for innovation, but it won’t lower the bar for compliance. 

“Moving more of the detail into the FCA rulebook should give firms greater scope to design products around how people access credit today. In return, they’ll need to show that their products are fair, their communications are clear and customers understand the cost, risks and consequences of borrowing.  

“What firms will want to see now is clarity, as lenders and businesses offering credit will need to understand how the new regime will apply in practice, what the transition period will look like, and how existing customer agreements, products and journeys will be treated. 

“For many, the challenge will be modernising compliance without creating uncertainty for customers or disrupting access to finance. Many lenders will welcome the proposed removal of some of the harsher technical sanctions linked to historic requirements related to agreements and information disclosure. That said, this shouldn’t be mistaken for a reduction in risk. 

“The focus is likely to shift from whether a firm has followed highly prescriptive documentation rules to whether the customer has been treated fairly. Poorly designed products, confusing digital journeys or weak governance could still lead to complaints, redress, regulatory scrutiny and reputational damage. 

“There are still important questions to answer, particularly around connected lender liability and unfair relationships, so firms will need to monitor the next stages of reform carefully.

The key point for firms is that reform shouldn't be treated as a relaxation of regulatory expectations. Instead of relying on highly prescriptive documentation requirements, businesses will need to focus on the quality of their products, the clarity of their communications and the strength of their governance. 

While the shape of the final regime is still developing, firms may wish to use this period to assess whether their credit products, customer communications, digital journeys and governance processes are fit for a more outcomes-focused framework. All firms should keep a watching brief of the final changes so that they can start making changes as soon as possible once the new rules come into effect.