The government announced yesterday evening (16 June) that it is committed to reforming the 1974 Consumer Credit Act (CCA).
Introduced nearly 50 years ago, the CCA has revealed itself to be woefully inadequate at meeting the needs of the fast-changing world of consumer finance.
Indeed, the government themselves admitted the Act, “which came into force in 1974 and governs billions of credit card purchases and loans each year, is highly prescriptive and increasingly cumbersome and inflexible – confusing consumers and adding unnecessary costs to businesses when implementing its requirements.”
Having consulted with the government in the wake of the Woolard Review, as part of a regulatory exercise that began nearly two years ago, Divido welcomes the news, believing that this update will increase the agility of financial services providers to innovate and meet changing consumer needs.
The CCA will be handed over to the Financial Conduct Authority (FCA) to regulate personally. The FCA will have the authority to react to changes in the market in real time, rather than having to go back-and-forth with the government to amend legislation.
The FCA will be able to quickly and clearly update consumers on their rights in the wake of any updates to the market. This will give technology and service providers the confidence to innovate in a way that is compliant and ensures their duty of care to consumers.
At Divido, we see this change as a significant boon for the Buy Now, Pay Later sector. We believe that handing authority of the CCA over to the FCA will help to accelerate innovation in the retail finance space, giving retailers, lenders and service providers the flexibility to meet consumer demand while remaining fully compliant.
It will also give confidence to new players looking to enter the market, thus increasing the range of options available to consumers.
This will, in turn, allow consumers to more confidently opt for retail finance, safe in the knowledge that they have been given clear information about the lending process, their rights and obligations.
And of course, more confident consumers will allow for more committed finance providers.
Furthermore, reducing the potential for consumer harm will bring the retail finance industry one step closer to achieving the “healthy, sustainable market” the Woolard Review initially set out to achieve.
Ultimately, the decision from the government is good news for every party with a vested interest in Buy Now, Pay Later – from investors, retailers and merchants, to the consumers themselves.
The government claims that a consultation into the proposed changes will be expected to be completed before the end of the year. In the meantime, Divido will continue to operate in the way we always have – providing best-in-class point-of-sale retail finance technology that goes above and beyond to augment retailers’ customer experiences while minimising the risk to consumers themselves.
Regarding the proposed update to the 1974 CCA, Todd Latham, CEO at Divido, had this to say:
“Given the timing of this announcement, it is clear the government has woken up to the fact that urgent and decisive action is needed to ensure the regulation of the Buy Now, Pay Later (BNPL) industry.
“The 1974 Consumer Credit Act is not fit for purpose when it comes to regulating this fast-moving industry. Indeed, one loophole in the act – an exemption allowing for the delayed payment of goods and services so long as the delay was time-limited and did not incur interest – is what initially encouraged BNPL providers to enter this space.
“However, many did so in an unsustainable way, by exploiting this loophole. As such, they have been allowed to operate in a way that has had the potential to expose consumers to harm. This has led to situations where consumers have been unable to repay their loans or, worse still, where they were not aware they were taking out a loan in the first place.
“This reform is the first of many steps needed to ensure the creation of a BNPL market that encourages innovation while still putting the consumer first – and this is the kind of market we will all benefit from.
“BNPL is a novel form of finance that will benefit from a more flexible approach. Handing over control to the Financial Conduct Authority will ensure regulators can respond quickly to changes in the market, giving both consumers and providers the confidence to act decisively.
“I see this as a positive step forward for Buy Now, Pay Later – which, as we’ve seen, is a form of finance consumers are increasingly starting to demand, albeit in a safer and more secure way.
“I fully welcome the government’s decision and will continue to ensure Divido remains ahead of the curve, providing best-in-class technology, built with compliance baked-in, for the benefit of our partners and their customers.”
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