CCA Retained Provisions Final Report – Focus on the implications for disputes

• United Kingdom

• Financial services disputes and investigations

31-05-2019

The FCA published the Final Report on the Review of the Retained Provisions of the Consumer Credit Act (CCA) on 25 March 2019 (the Final Report). In this briefing, we set out the key provisions for those involved in disputes involving the CCA.

Background

When the FCA took responsibility for regulating consumer credit in April 2014, 82 provisions of the CCA were repealed and some were replaced by FCA rules. The FCA was required to review the remaining 167 retained provisions of the CCA, together with the associated regulations and to report to HM Treasury by 1 April 2019.

The retained provisions span a wide range of issues, including those conferring specific rights or obligations on consumers or third parties, such as section 75, and those retained because they derive from the EU’s Consumer Credit Directive.

Rights and Protections

Section 75 CCA – Liability of creditor for breaches by supplier

The FCA concludes that section 75 should be retained as it provides strong consumer protection. The consumer survey (at Annex 3 to the Final Report) found that most consumers were aware of protections afforded, for example when paying for goods or services using a credit card and this encouraged consumers to use their credit cards over other means of payment.

The FCA cannot use its general rule-making power to make a rule that replicates the meaning and effect of section 75. The FCA adds that even if it could, there is substantial judicial learning on the interpretation and scope of section 75 that would be lost. In the years since section 75 came into force, there have been considerable developments in technology and payment methods. Those developments have led to issues on the application and scope of section 75. Paragraph 5.34 of the Final Report details other issues identified with section 75. These are summarised in the table below. 

In summary, section 75 will be retained in legislation but the FCA considers there is merit in considering further the issues identified with this provision to ensure it provides adequate consumer protection without imposing an undue burden on firms. We can expect further work on this from the FCA.

Time orders

Sections 129-133 CCA enables the court, if it is just to do so, to redraw the terms of an agreement to reasonably reflect the customer’s ability to repay the debt within a reasonable period. While some stakeholders argued that these provisions are rarely used and have been effectively superseded by forbearance requirements, the FCA considers they should be retained. Following feedback that the process of applying for time orders can be expensive, time-consuming and obscure, the FCA agrees that there may be merit in reviewing the triggers and procedure for a time order application.

Unfair relationships

Some stakeholders argued that court intervention to contractual agreements under s140A is no longer necessary, given the regime under FSMA and the role of the FCA and FOS. The FCA does not agree. The FCA notes that while there have been fewer than 50 reported cases under the unfair relationships provisions, of which only some have been successful, advisors regard the provisions as a useful tool in negotiating with creditors so many cases do not reach the courts.

It is their view that it would not be appropriate to remove the ability of a debtor to ask the court for relief from the consequences of an unfair relationship. The FCA notes that given the wide definition of ‘credit agreement’, a debtor may be protected by this section even if they are not a ‘consumer’.  Section 140A also allows the courts to reopen and rewrite credit agreements. FOS does not have an equivalent power.

The FCA does not consider it necessary to provide any guidance on the meaning of ‘unfairness’ stating that the formulation in section 140A that the court “shall have regard to all matters it thinks relevant” was intended to give the courts a wide discretion to consider unfairness.

Voluntary termination

Under section 99, a customer has the right to terminate a hire-purchase or conditional sale agreement at any time before the final payment falls due, provided that the customer has paid at least 50% of the total amount payable, or pays up to that amount. Consumer groups claimed, amongst other things, that the voluntary termination provision constitutes an important option for customers who have become over-indebted and cannot afford to settle early. Industry respondents argued that the rights are rarely exercised by customers in financial difficulty, but instead by those wishing to switch to another agreement. A previous consultation by the DTI in 2007 noted that it would not be possible to remove these provisions in isolation. Any review would need to take the concept of hire-purchase as a whole into account.

The FCA concludes that it could not replicate the effect of section 99. For example, it could not make rules unravelling the passing of title to goods. That means that it recommends that the provision should be retained in legislation. However, the FCA accepts that there may be merit in a review of the provisions and how they operate.

Termination of hire agreements

Section 101 entitles the hirer to terminate a consumer hire agreement on notice where the annual payments do not exceed £1,500, provided that this does not expire earlier than 18 months after the making of the agreement. The FCA considers that this section could be repealed and replaced by FCA rules but that it may be preferable to do that as part of a wider review. 

Information Requirements

One of the recurrent themes raised by industry representatives in response to the interim report was the level of prescription within the CCA on information requirements. That was said to impose unnecessary constraints on firms and lead to poor outcomes for customers. Customer organisations emphasised the protection provided by the information requirements. The FCA recognises that there must be a balance between providing customers with the right information and the burden on firms being proportionate.  

The FCA concluded that most of the information requirements in the CCA could be replaced by FCA rules, though there are important exceptions, such as notices under sections 76 and 87. In some cases, it may be possible to adopt a more principles based, outcomes focused approach. However, the loss of the associated sanctions, including enforceability would affect consumer protection. One option is therefore to replace the information disclosure obligations with FCA rules, with the related provisions that provide for the civil consequences of non-compliance being retained in the CCA or other legislation.

Should the information requirements be replaced by FCA rules, that would provide an opportunity to review the requirements in detail to consider whether appropriate outcomes are best achieved by prescriptive or principles based requirements or a combination of the two.

Sanctions

The FCA considers that the self-policing nature of the sanctions of enforceability and disentitlement to interest and default sums contributes significantly to ensuring key customer information needs are met as unenforceability incentivises firms to comply with information requirements.

The FCA concludes that a combination of the CCA sanctions, the FCA’s regulatory powers and the private right of action under FSMA is appropriate. However, sanctions should be focused on breaches which are most likely to cause material harm to consumers, particularly those who are vulnerable or in financial difficulties. As stated above, as the provisions on enforceability and disentitlement to interest could not be repealed without a detrimental effect on consumer protection, the FCA’s view is that there is merit in retaining the sanctions in the CCA.

Next steps

Decisions about the future of CCA provisions will now fall to the Government. Given the current focus of the Government and Parliament on Brexit, it seems unlikely that we will see any legislative changes in the near future.