Director General's Blog

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Reforming Consumer Credit Legislation

8 October 2020

By Stephen Haddrill, Director General

 

Earlier this week the Treasury announced revisions to the legislation which prescribes how default notices issued by lenders should be written.  This is a step forward. For too long, the law has required lenders to use language that is threatening in tone and does not reflect the mutually respectful relationship that lenders seek with borrowers.
 
It might seem churlish therefore to complain, but the truth is that the announcement has only scratched the surface of what needs to be done to reform consumer credit legislation.
 
The Consumer Credit Act and other regulations set out the terms of three important letters which are sent to borrowers who are struggling to repay their loans. The default notice is the last of these.  Ahead of this are the letters which explain the help that borrowers can receive, and how that help will translate into a new loan agreement: known as the Modifying Agreement.  The law stipulates what this agreement should contain, but in an attempt to be comprehensive, it gives birth to something that can be very confusing for the borrower.  That creates unnecessary anxiety.  Such anxiety is then compounded because the new agreement cannot be signed online and therefore takes an unnecessary amount of time to put in place.
 
Some lenders have tried to reduce the pressure on the borrower by just issuing an informal, brief statement of the forbearance they will provide. But in doing so they risk being challenged later on the enforceability of the new arrangement. And also in due course they have to issue a Notice of Sums in Arrears, again in prescribed, archaic and abrupt language.
 
These are just some of the faults with the Act.  It also inhibits innovation and the use of technology.  It adds complexity to lending on electric vehicles that will help tackle climate change.  The time has come to reform it properly by sweeping it away and replacing it with a regime that fits the way that the financial services industry is now regulated: by a regulator empowered to adapt consumer protection quickly to changes in the way the economy works, to the way people want to receive information, and to the way services are provided. That is a major but necessary task.  It has been on Ministerial agendas for years. It needs to be resourced and put at the top of the list.

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