New plans to reform consumer credit laws that would cut costs for businesses and simplify rules for consumers have been unveiled by the government.

The Treasury has committed to reform the Consumer Credit Act (CCA), which regulates all credit card purchases and personal loans.

The CCA came into force in 1974 and governs billions of credit card purchases and loans each year. The Treasury has described the act as “highly prescriptive” and “increasingly cumbersome and inflexible”, which could confuse consumers and add unnecessary costs to businesses when implementing its requirements.

A consultation on the direction of reform is expected to be published by the end of the year, with plans to modernise the act will cut costs for businesses and simplify rules for consumers

Economic Secretary to the Treasury, John Glen said: “The CCA has been in place for almost 50 years – and it needs to be reformed to keep pace with the modern world. We want to create a regulatory regime that fosters innovation but also maintains high levels of consumer protection.”

The government has indicated it will move much of the act from statute to sit under the FCA – a move that would enable the regulator to quickly respond to emerging developments in the consumer credit market, rather than having to amend existing legislation. It will also simplify ambiguous technical terms to make clear to consumers what protections they have, as well as make it easier and more cost effective for businesses to comply with regulation.

Commenting on the Treasury’s announcement, director general of the Finance & Leasing Association, Stephen Haddrill, added that news of the reform was “a great result”.

“We have campaigned for CCA reform on behalf of our members and their customers over several years, and I am very pleased indeed that the Economic Secretary to the Treasury, John Glen, has confirmed that this will now go ahead,” said Haddrill.

“The CCA’s tendency to complicate and delay that which should be simple and quick meant that it was barely up to the task of regulating business and protecting customers during benign periods, but during the pandemic, it fell well short of lender and customer expectations.  

“We look forward to working with Treasury and FCA colleagues ahead of the government’s consultation towards the end of 2022.”

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