The Government has announced its intention to scrap the current Consumer Credit Act, replacing it with new rules overseen by the Financial Conduct Authority (FCA).
This move, which will see the protective Section 75 disappear, follows the publication of the results from a recent Treasury consultation.
Section 75, a key part of the Consumer Credit Act, has offered a lifeline to millions of consumers. The regulation ensures credit card companies are jointly liable with retailers if goods or services are not delivered, thereby enabling customers to seek refunds from their card provider.
Sarah Coles, head of personal finance at Hargreaves Lansdown, reflected on the significance of the planned changes. “Section 75 has pulled [people] out of a dark hole,” she said. “So, the fact the government is planning to axe the Act is bound to be unsettling.”
The Treasury is currently contemplating the shape of Section 75’s replacement, with detailed proposals and another consultation expected next year. Respondents to the recent consultation showed strong support for maintaining a provision akin to Section 75, albeit with some modifications.
One suggested change was to improve clarity on transactions involving an intermediary, such as online marketplaces, rather than direct credit card and seller interactions. Another debated point was the extent of a credit card company’s liability. Under the current rules, if a consumer pays a deposit with a credit card, the card company may be responsible for the entire cost of the service or item.
There were also discussions around whether the new rules should cover consequential losses, such as additional expenses incurred as a result of a cancelled event. Moreover, the requirement to pursue the vendor before making a claim from the credit card company was another aspect proposed for reconsideration.
Another topic raised in the consultation was the treatment of consumer hire purchases, now a prevalent financing option in the car buying industry and among vulnerable individuals purchasing essential items. There were mixed opinions on whether these borrowers should receive the same protection as others.
The consultation also highlighted an opportunity to better support vulnerable people through the new regulations. These could involve more straightforward numerical representations, less jargon, and sensitive handling of default notices to help those facing mental health struggles.
Coles said: “More flexibility in the language and content could allow lenders to be more sensitive to people’s needs.”
