Shelter Specialist Debt Advice Service response to HM Treasury Consultation “Reforming the Consumer Credit Act 1974”
March 2023
About SDAS
Shelter’s Specialist Debt Advice Service (SDAS) has been operating since 2017 and is funded by the Money and Pensions Service (MaPS) and the Welsh Government to provide expert consultancy advice and technical content to Citizens Advice, free-to-client advice agencies, local authorities and housing associations across England and Wales.
The accessible, responsive, expert advice Service is delivered by a telephone advice line, webchat and an online portal. The service handles around 5,000 enquiries per year across a broad range of debt topics, including debt relief orders, breathing space, bankruptcy, County Court money judgments, and mortgage possession.
The Service also develops and publishes a range of legal and technical updates, including a monthly e-bulletin, contributions to the IMA Quarterly Account publication, and ad hoc articles. The updates are made available to SDAS subscribers, as well as being published on the SDAS website and the Debt section of Shelter Legal.
Additionally, the Service has developed and implemented a strategy for raising awareness of debt issues amongst debt advice providers. We attend Money Advice Group meetings, lead discussion forums to share good practice, plan policy initiatives and attend quarterly meetings with the Insolvency Service to discuss themes, trends and suggest changes to debt solutions guidance.
Introductory note
We are broadly supportive of the Treasury taking an interest to ensure that consumers are fully and properly protected. However, we have significant concerns with the suggestion of moving well established legislative and common law consumer protections from the statute books and the courts to FCA guidance and rules.
We are of the view, that the focus of any changes should be more consumer centric due to the significantly different bargaining positions between consumers and businesses. We would like to see a clear intention to put consumers first.
It is vital that key requirements and protections with strong sanctions are retained in legislation, which could be supplemented with more detailed FCA rules and guidance. At the time of writing, the FCA does not have the power to determine disputes between consumers and businesses: this highlights the important role of the courts as they can go further when determining enforceability or unfairness of consumer contracts. It is our experience that the Financial Ombudsman Service (FOS) has been reluctant to make determinations in favour of consumers where there is evidence that legislative requirements had been breached. This clearly is not reassuring for consumers relying on this process.
While some sanctions might appear disproportionate when looked at in individual cases, it is important to consider that only a small proportion of cases result in a sanction following a breach. It is this risk of severe sanctions that provides a means of ensuring compliance with key requirements for consumer protection.
It should be remembered that the intention of the Consumer Credit Act 1974 was to redress the differences in bargaining strength and background knowledge between a business and consumer. This remains important today.
Consultation response
The Specialist Debt Advice Service has provided answers to the questions where it can offer insights. Questions without an answer submitted are omitted.
Question 1: Do you agree with these proposed principles, and do you have views about tensions between them or relative prioritisation?
The principles seem to be more about means than ends. “The overall objective for this reform is to modernise and streamline regulation to the benefit of consumers and business.” However, it would be good to see a stronger focus on what should be achieved by the reforms. For example, ‘that consumer detriment is quickly identified, and prompt action taken to address it’.
We are concerned that the concept of proportionality can be interpreted in different ways. For example, a sanction of unenforceability might be quite disproportionate when looked at on an individual case basis. However, considering that only a small proportion of cases where a failure leading to such a sanction has occurred will be taken up, what might appear to be a disproportionately severe sanction settles into perspective. The risk of a severe sanction can provide a cost-effective means of ensuring compliance with key requirements.
There is, of course, a tension between protecting consumers and allowing businesses to innovate and trade, free of unnecessary hindrances. We would like to see a clear intention to put consumers first in this review, whilst ensuring that unnecessary or overly burdensome hindrances to business are minimised.
Question 3: Are there any existing definitions or concepts in the CCA which should be updated and clarified when moved to FCA rules?
To ensure accessibility to the protections under the current CCA legislation, there should be a glossary of simple and understandable definitions and these definitions should be consistent throughout the guidance/legislation. We do not agree with the framing of this question as it seems there is a presumption that the definitions/concepts will be moved to FCA rules. Definitions and concepts should be defined within legislation where ‘goal posts’ are less likely to change and therefore this should lead to consistent approaches for consumers.
Question 4: Are there concepts in the CCA which are not currently defined but which should be?
Buy Now Pay Later (BNPL): currently some BNPL agreements are exempt from regulation and therefore not regulated under the CCA or FCA. This is the case even if the company is FCA regulated. At present, these types of agreements have found an unintended loophole in the regulations that was not seen when considering these agreements for consumers. The intent was for short invoices. It is noted the government is aware of the potential significant detriment that could be caused to customers using these types of agreements. We agree that these concepts/agreements need to be properly regulated by the CCA and FCA.
At the time of writing, agreements involving goods or services repayable in no more than four instalments in 12 months – i.e., normal trade credit, for example payable in 30 days. An agreement made on or after 18 March 2015 is exempt if the number of instalments is no more than 12. For agreements made on or after 1 February 2011, the credit must be provided without interest or other significant charges, otherwise the agreement is regulated.
It is essential that the government bring in all types of BNPL agreements to protect consumers, especially vulnerable consumers. We understand there is a separate consultation for BNPL which will close on 11 April 2023.
Question 6: Do you support the conclusion of the Retained Provisions Report that most Information Requirements could be replaced by FCA rules without adversely affecting the appropriate degree of consumer protection, and that it is desirable to do so? Are there any additional factors the government should consider given the context changes since the report's publication in 2019?
We think it is important that certain key requirements are retained in legislation with strong sanctions in place in the event of non-compliance. These key requirements can be complemented by further detail in FCA Rules.
This approach will provide the benefit of clarity in respect of key protections, for example, that a default notice must be served before court action may be taken. Strong sanctions for non-compliance will help ensure compliance with the most fundamental requirements whilst non-compliance with the more detailed rules will be a matter for the FCA to consider in its regulatory work or for FOS to consider in its resolution of complaints.
Question 7: In what circumstances is it important that the form, content and timing of pre-contractual and post-contractual information provided to consumers is mandated and prescribed? What are the risks to providing lenders more flexibility in this area?
We can see a danger in removing too much prescription from information requirements in favour of detailed FCA rules. We could reach a situation where the only body that is clear about what the requirements are is the FCA itself, and that would not be a healthy situation.
As stated in our response to Question 6, we would like to see fundamental requirements retained in legislation but supplemented with more detailed rules.
Question 8: The Consumer Understanding outcome in the Consumer Duty posits that consumers should be given the information they need, at the right time, and presented in a way they can understand it. Does the implementation of this section, and the Consumer Duty more broadly, go some way to substitute the need for prescription in CCA information requirements?
The Consumer Duty requirements should help the FCA undertake its regulatory work and should also help FOS to adjudicate on individual complaints. However, we strongly believe that the most fundamental information requirements need to be enshrined in legislation with strong sanctions for non-compliance. This will help ensure a higher level of compliance with key information requirements whilst acknowledging that there will inevitably be a degree of variation in relation to best practice.
Question 9: Given the increasing using of smartphones and other mobile devices to take out credit products how can consumer information be delivered on devices in a way that sufficiently engages consumers whilst ensuring they receive all necessary information?
We think that ensuring information provided to a consumer cannot be skipped or ignored when entering contracts or agreements, especially with the increasing use of mobile devices. We are aware that there are technological ways to detect whether a page has been read. Consumers could be asked questions related to the agreement to check the information has been read and understood.
Example: when investing in a company, there are general questions about the investment process to ensure the consumer has a basic understanding of the risks and consequences of the agreement. This could be used to asked specific questions concerning consumer credit agreements to check whether a consumer has a basic understanding of the consequences of non-payment (including court action, enforcement, impact on credit rating and additional charges).
It is essential to ensure that agreements, contracts, attached terms and conditions, and any important information can be properly viewed on mobile devices and smartphones.
Question 10: Are there any areas where, in your view, consumer protection legislation, rules and/or guidance, outside of the CCA, makes for appropriate levels of consumer protections and mirrors or replicates the effects of the provisions in the CCA?
No.
Question 11: If other consumer protection legislation, rules and/or guidance, outside of the CCA, falls short of replicating the effect of the provisions in the CCA, where do these gaps exist and how significant are they?
We do not see duplication of CCA protection in other legislation.
For example, the Time Order provisions in the CCA provide the courts with much greater flexibility to protect borrowers with Regulated Mortgage Contracts from eviction than the protections in the Administration of Justice Acts. In particular, they allow the courts to make orders for repayment reflecting a debtor’s present and future ability to pay, where it is just to do so. The Administration of Justice Acts, on the other hand, generally require repayment of mortgage arrears within a “reasonable period”. This leads to particular anomalies, such as that legislation being unable to protect those who have reached the end of their interest-only mortgage’s term as the whole amount outstanding on the mortgage will have become payable.
See more on Time Orders at Question 15, below.
The protections in the CCA are mostly quite specific to consumer credit and it is this specificity that enables the protection to be clear and focussed. We would be concerned that the transference of key protections elsewhere would have the effect of watering down their impact.
Question 12: The FCA’s Consumer Duty mandates a consumer support outcome. Do you have any views on how the Consumer Duty interacts with the rights and protections provided to consumers in the specific consumer credit regulatory regime, which currently consists of the CCA and FCA rules?
We think the Consumer Duty can provide an additional layer of benefit to consumers, allowing the regulator to encourage and foster best practice, though we have little doubt that actual practice will be uneven. It is, therefore, important that clear minimum requirements are enshrined in legislation, with severe sanctions for non-compliance.
In other words, legislation should absolutely ensure minimum standards whilst the FCA has the tools to improve best practice across the industry.
Question 13: If it is possible to amend the FCA’s FSMA rulemaking power to enable FCA rules to replicate the effect of rights and protections currently in the CCA, what is your view on the risks and benefits of doing this?
The FCA does not have the power required to determine disputes between consumers and financial institutions offering consumer credit. Therefore, the role of the courts, via legislation, is of vital importance when protecting consumer rights. The FCA cannot go as far as the courts when determining whether an agreement is enforceable or unfair.
There is a significant risk that the loss of these rights and protections could result in consumers (and debtors) being unable to properly dispute a claim when a creditor has breached an FCA rule, as opposed to legislation. It is accepted at paragraph 4.23, that certain sections of the CCA would need to remain as legislation (section 75 CCA 1974 for example) as this could not be fully implemented in FCA rules. There is a significant risk that existing case law related to other CCA sections would be ignored or lost by moving away from well-established legislation.
Extending the FCA’s rulemaking powers is unlikely to go far enough and there have been unsatisfactory responses from the FCA following legitimate complaints where creditors are in clear breach of the FCA rules (CONC). The focus for complaints is what is considered ‘fair and reasonable’ in the circumstances and is an ‘informal service as a free alternative to the courts’ and extending the powers will cause difficulties with capacity to deal with complaints effectively.
Question 14: Are there any rights and protections provisions which you feel should not be moved to FCA rules and should remain in legislation? Please provide an explanation of why you hold these views.
Currently, the CCA provides consumers with important rights and protections at both pre-contractual and post-contractual stages of an agreement. If these rights and protections are denied by a creditor, a consumer can escalate the dispute for the courts to decide whether an agreement is enforceable or unfair, to the extent a creditor cannot require payments under that agreement. Paragraph 4.24 neatly lists the lack of power the FCA have in its current position.
Sections 60, 61, 62 ,63 and 64 CCA 1974: These sections relate to procedural irregularities and covers the form of a regulated agreement. Therefore, these sections are of vital importance, because if an agreement does not comply with the CCA, it can only be enforced with permissions from the courts. This raises the question of whether non-compliant agreements made before 6 April 2007 would remain ‘irredeemably unenforceable’ as is the case currently.
Section 75 CCA 1974: (see question 13) it has been accepted that it will be very difficult to transfer the statutory impact of this. This section stands in contrast to the usual contractual position that a creditor is not liable for the acts or omissions of a supplier. This is generally because a supplier is not considered, in law, the ‘agent’ of the creditor. This section creates a connected lender liability and gives consumers an opportunity to seek redress from both a creditor and the supplier.
Sections 77 and 78 CCA 1974: This is extremely useful when consumers request information as the legislation requires a creditor to provide certain information within 12 working days. Failure to provide information within the time frame renders the agreement unenforceable until the creditor provides it. This puts creditors on the clock, where informal requests have been ignored or there has been some delay in obtaining information required to deal with the case (this echoes the position stated in question 8).
Sections 94, 95 and 97 CCA 1974: These sections provide a statutory right for consumers to settle a regulated credit agreement early. If settled early, consumers should pay less than the total amount payable than where the agreement runs to the full term. A creditor is required to provide a settlement figure to a consumer wishing to settle the account early and be transparent about how the amount is calculated.
The case of Kerrigan v Elevate Credit International (2020) EWHC 2169 (Comm) concerned affordability checks and unfair relationships. This is an example of the courts’ essential role in providing consumers with another layer of protection.
The above protections are very important and highlight the complexities involved and possible risks of consumers/borrowers losing essential protections and powers when dealing with creditors where it is clear they are not equal partners (see question 19). Moreover, once the legal process is engaged both creditors and consumers/debtors have clearly defined timescales for compliance, disclosure and onus of proof in court proceedings; this is not the case within FCA rules.
Question 15: Given this, to what extent do time orders provide additional protections to these rules and guidance? What evidence are you aware of that the existence of this right changes firm behaviour and improves consumer outcomes?
The Time Order provisions have never worked as effectively as they might. Courts have been reluctant to pro-actively make Time Orders using their powers to make an order “in an action brought ... to enforce a regulated agreement” (s129(1)(c) CCA 1974) so the onus has always been on the borrower to make an application. In practice, legal support to do this has not been available due to the lack of legal aid, and debt advisers in the free-to-client debt advice sector have been unable to spend the time required due to unrealistic funder case targets
Additionally, the shift of second charge borrowing into the regulated mortgage contract (RMC) regime has effectively removed any possibility of an application being made prior to possession proceedings being started by the lender, as the specified notices that trigger the possibility of an application being made in s129(b) and (ba) are not required to be served in the RMC regime. Therefore, it is now only possible to request a Time Order in response to a court claim for possession.
We think that the problems and limitations of Time Orders provides reason to consider how they might operate more effectively, rather than discarding this important protection. In particular, we would like to see a ‘pre-court trigger’ for application in respect of RMCs to be made, perhaps tied into the Protocol for Mortgage Possessions Claims. We would also like to see clearer direction to courts to encourage them to pro-actively consider the use of Time Orders to protect borrowers from unnecessary eviction.
Government statistics show that in 2022 mortgage repossessions were up by 91% compared with the same quarter in 2021. This trend seems likely to continue given the cost-of-living crisis. Considering this, we feel that the wider protections afforded by time orders for homeowners struggling with RMCs are more valuable now than ever before. They will enable the courts to achieve just outcomes where sole reliance on the provisions in the FCA Mortgage Conduct of Business Rules and the AJA1970 would not.
Para 4.27 of the Consultation paper states: ‘... The court can also amend the agreement in consequence of making a time order, such as reducing the rate of interest... Time orders require complex applications to the court, and the government are not aware that time orders are commonly applied for.’ We are not aware of data confirming the number of time orders which have been made by the courts in recent years. However, we think that there are at least two reasons why, if they are not commonly applied for, this may be the case.
Firstly, mortgage interest rates have been very low for a number of years. This has surely contributed to relatively low numbers of repossessions. It would also mean that there is less consumer requirement for the time order provisions which can reduce interest rates. It follows that many mortgagors facing repossession will have been able to secure a suspended possession order and avert repossession by relying on the provisions of s36 AJA 1970 as amended by s8 AJA 1973.
However, according to analysis by wealth management company Quilter, there is often a correlation between rising interest rates and an increase in housing repossessions. It follows that the power to freeze or reduce interest rates under the time order provisions could become a very important mechanism allowing the courts to secure just outcomes for mortgagors facing the loss of their home.
A second potential reason for the low numbers of time orders is the obscurity of the provisions to those who assist debtors facing repossession until relatively recently. For example, see the article Mortgage possession claims: the changed legal landscape by Daniel Clarke, Derek McConnell and Simon Mullings published in the journal Legal Action in June 2018. Shelter has produced resources to ensure that housing law practitioners representing those facing repossession are aware of the option of applying for a time order and how to do so. We consider that by raising awareness of the time orders provisions amongst housing law practitioners and the courts, they will be invaluable to assist consumers to remain in their home. As such we consider it very important that they are retained and not repealed.
Question 16: What is your view on the usefulness of the right to voluntary termination and its role in protecting consumers? Are there improvements that could be made to the functioning of this right
Voluntary termination (sections 99/100 CCA 1974): consumers have the option to terminate a Hire-Purchase (HP) or Conditional Sale (CS) agreement and only be liable for up to 50 percent of the total amount of the payments and any arrears. These are the most common types of vehicle/car finance.
This is an important protection for consumers for HP and CS agreements, as this provides a right to consumers to cancel/terminate the agreement before the final payment is due, though they would remain liable for 50% of the total amount payable, plus arrears.
This is an option that can be used by consumers experiencing financial difficultly, but also could be used by consumers who are looking to improve their financial circumstances by changing their vehicle or looking for alternative and cheaper finance agreements.
This is an important provision to ensure competition across the market and choice for consumers. The provision gives consumers an opportunity not to be tied into expensive contracts, when there could be cheaper alternatives available. This provision could be used by companies to improve consumer retention and offer alternative, cheaper rates at the half-way point when a client may wish to utilise this option, but these contract changes would need to be regulated in the same way and provide the right to voluntarily terminate.
It would be a mistake to limit this essential right/option to those consumers in ‘financial difficulty’ as this may be difficult to define. Furthermore, it would be difficult to replicate this type of rule in FCA guidance alone, where a consumer's liability can be limited to 50 percent of the total amount payable as part of a contractual agreement.
Question 17: To what extent do the FSMA and FOS regimes make the unfair relationship provisions unnecessary? If these provisions are to be kept in legislation, with other rights and protections moving to FCA rules, does this create more complexity and confusion for lenders and borrowers and what will the effect on innovation in the sector be?
From the consumer perspective, the Unfair Relationship provisions in the CCA have largely failed due to the inequality of access to the courts between creditor and borrower. Legal advice and representation are, in practical terms, necessary to pursue a case and this is rarely available.
Additionally, the borrower must subject themselves to substantial costs risks when making an application, which can deter challenges even where strong legal grounds exist.
Our team has experience of a case where an application had been listed for hearing but shortly beforehand the lender served a costs certificate for more than £10,000. The borrower was being represented by a lay adviser whose costs could not be claimed from the lender. The borrower was persuaded to withdraw their application minutes before the hearing was due to start.
Question 18: Would you be supportive of HM Treasury exploring the option of amending FSMA rule-making powers in such a way to enable unenforceability to apply to breaches of FCA rules in a similar manner to how unenforceability applies under the CCA, noting there would not be a role for court action in this scenario?
We are extremely concerned here that, in Rules, there may be a tendency to drift toward dealing with unenforceability on a proportional basis seen on a narrow, case-by-case basis. Such provisions may not provide sufficient incentive/deterrent for the creditor to get things right in the first place.
We think it is important to have clear ‘bottom line’ requirements backed up by severe sanctions, such as irredeemable unenforceability. If the requirements are clear, severe sanctions should lead to a higher (hopefully universal) level of compliance.
We agree with the FCA’s conclusions in their Review of Retained Provisions of the CCA Report that the loss of the corresponding sanctions for non-compliance with information requirements would lead to consumer detriment.
The FCA does not currently arbitrate the resolution of individual disputes between consumers and firms. This is done by FOS. The proposal to remove the role of the courts in the arbitration of these disputes would therefore require the FCA to create a quasi-judicial structure within which decisions as to whether a breach of its rules had taken place could be made. This would obviously take a considerable amount of time and resources of which the FCA has a finite amount.
One concern is that if FCA rule-making powers were expanded to allow unenforceability for breach of FCA rules, the determination of questions of enforceability might be delegated to FOS for reasons of efficiency. That is because FOS already has an established arbitration structure. For example, FOS has powers to convene hearings to determine complaints if necessary (DISP 3.5.5 R).
In our direct experience of supporting debtors with complaints, FOS has been reluctant to make determinations in favour of consumers which are commensurate with their legal rights under the CCA 1974. For example, in a decision dated 29 January 2018 (Complaint reference 1902-8254/HD/JC06) the Ombudsman declined to uphold a consumer complaint, whilst acknowledging that the requirements under S77A and S86B of the CCA 1974 had likely been breached: ‘...I thought Mrs G’s representative had a stronger argument here (in respect of breaches of s86) which is why I went on to explain why, even if I accepted that there had been some breaches of the Consumer Credit Act I didn’t think Arrow Global had acted unfairly.’ FOS determines complaints by reference to what is, in the Ombudsman’s opinion, fair and reasonable in all the circumstances of the case (DISP 3.6.1 R) If the arbitration of enforceability questions was approached in a similar way within a new FCA arbitration system, the result would be poorer consumer outcomes.
Even if the proposals under question 18 were implemented, in our view the role of the courts would not be excised completely from the process. The FCA is a public body. As such its decisions can be subject to judicial review (The Encyclopedia of Financial Services Law (2023), issue 167, at paragraph 2A-011, Sweet and Maxwell).
Question 19: Do you agree that the government should consider the proportionality of sanctions and ensure that they are relative to the consumer harm caused/potentially caused?
At paragraph 4.38 it says that sanctions are currently ‘self-policing’ and apply automatically without the FCA or the consumer needing to take specific action.
Consumers are often unaware of these sanctions and the impact they have on them when a firm does not fully comply. This is a concern as some firms may proceed with enforcement, despite being in breach, but unless or until a consumer is aware or acts considering these automatic sanctions, the firm will continue with action. Consumers should be made aware of these breaches and firms should be required to inform them of the impact of the breach, and until it has been rectified, they cannot enforce or charge interest or other charges during that time.
This shows the clear divide between firms and consumers, as firms are required to know, understand, and use the regulations and legislation properly. However, consumers do not have the same level of resources or knowledge to properly understand the impact of the CCA regulations, rules, guidance and legislation. This is evidence of the need of proportionality to be considered, but in favour of consumer protection and possible detriment.
Furthermore, 4.38 goes on to say ‘the FCA has finite resources and cannot closely supervise all firms in the market and take action every time an issue is identified’. This suggests that a greater onus should be placed on firms to provide consumers with all information regarding enforceability, especially if firms believe there is little chance of being sanctioned by the FCA directly. The situation with Amigo Loans highlights the position, while they have been sanctioned by the FCA for significant failures to conduct proper affordability checks they have avoided the significant fine, which Amigo has been able to negotiate. This again shows the different bargaining positions between firms and consumers.
Currently, the courts have superior powers to the FCA or FOS. Under the FCA, a consumer has the option to complain or bring a civil claim for damage against a firm (I.e., sue) which can be costly for struggling consumers (highlighted by the direct example at question 18).
Finally, the focus should not be whether harm has been caused or is potentially caused, but what is in the ‘best interest’ of the consumer.
In short, a firm and consumer are not equal partners in these types of transactions and consumers should be afforded greater protections which can be safe guarded through the courts.
The FCA review of the retained provisions of the CCA 1974 acknowledges at paragraph 7.62 that the government intended that the disentitlement sanctions for non-compliance with post-contractual information requirements should be punitive rather than only compensatory. They were intended to ‘penalise them (creditors) for non-compliance in a way that hurts them most.’ This was to tackle a recognised consumer detriment resulting from over-indebtedness.
The now retired Solicitor and Consumer Credit expert Guy Skipwith in the Citizens Advice Adviser journal (issue 162 p47) quoted the then Department of Trade and Industry’s concern which led to the legislation - ‘One of the biggest areas of consumer detriment was shown to be a lack of transparency on the state of borrower’s accounts.’
Skipwith goes on to cite the case of London North Securities v Meadows [2005] EWCA Civ 956 - ‘that involved a secured loan of £5,750 with a total charge for credit of £20,699 under which £26,449 was repayable. The borrowers had paid £24,538 and the debt had increased to £384,674 including default interest of over £339,000 and default charges and legal costs of £43,000. The borrowers never received any statements alerting them to this situation and there was no requirement on the lender to provide them.’
The Meadows case is perhaps at the extreme end of the spectrum in terms of detriment. However, our service has assisted debtors with multiple complaints such as the one referred to in our answer to question 18, where the default sums and default interest unlawfully charged alone (£33,000) considerably exceeded the original sum advanced (£26,000).
We would strongly argue that considering the extreme consumer detriment that the legislation was enacted to address, the current sanctions (e.g., under S77A (6) and S86D (4)) should remain unchanged. In support of this view, we refer to the House of Lords decision in Wilson v First County Trust Ltd [2003] UKHL 40 and its rejection of the argument that the ‘irredeemable unenforceability’ under s127 (3) CCA1974 (as it then applied) contravened Article 1 of the First Protocol of the ECHR. Part of paragraphs 71 and 74 of Wilson are extracted below:
‘71...In prescribing these two exceptions (creating irredeemable unenforceability) Parliament must be taken to have considered that the sanction generally attaching to non-compliance with the statutory requirements was not sufficient to achieve compliance with the duty to include all the prescribed terms in the agreement … or the duties to provide copies and notice of cancellation rights (sections 62 to 64). Something more drastic was needed in order to focus attention on the need for lenders to comply strictly with those particular obligations.’(our emphasis)
…
‘74. Despite this criticism (expressed at paragraph 73 in relation to the harsh effect of the provision on creditors) I have no difficulty in accepting that in suitable instances it is open to Parliament, when Parliament considers the public interest so requires, to decide that compliance with certain formalities is an essential prerequisite to enforcement of certain types of agreements. This course is open to Parliament even though this will sometimes yield a seemingly unreasonable result in a particular case. Considered overall, this course may well be a proportionate response in practice to a perceived social problem. Parliament may consider the response should be a uniform solution across the board.’ (Our emphasis)
Parliament legislated in the public interest to address a perceived social problem with the introduction of the post-contractual information requirements (e.g., S77A and S86B – S86D). We do not consider that in the 15-year interim period the policy landscape has changed in such a way as to justify an amendment to the sanctions regime, introducing judicial discretion in the application of these sanctions. That is with reference to the judicial balancing of creditor culpability against consumer detriment.
Due to many factors, consumers are still struggling with unmanageable debt and in many cases spiralling default sums and interest charges. For this reason, we consider the current sanctions to be a ‘proportionate response’ in the sense of words given by Lord Nicholls of Birkenhead in Wilson quoted above. They should remain unchanged.
Question 20: What types of breaches of CCA rules do you think that sanctions should attach themselves to and why? For example, should the disentitlement sanction be limited to the small sub-set of cases giving rise to unenforceability, where there is the greatest risk of harm?
We understand that the original policy intent was for sanctions to have meaningful consequences for non-compliance by financial houses. At part of this consultation, the focus for sanctions appears to be where there is ‘evidence of consumer harm’, which can be difficult for consumers to show. This focus misses the point of the protections for consumers.
The current sanctions for failure or breaches related to required notices (sums in arrears, default and termination for example) are very powerful and should remain in place. Granted some of the required language and formatting may require updating, but it is important that creditors, consumers and debtors have consistency across the financial market. The sanctions (I.e., unenforceability) in place for these failures are, in our view, appropriate as they give power to consumers to hold creditors / firm to account. This is more vital where consumers are experiencing financial difficulties.
While you have asked whether specific sanctions should be attached to breaches of CCA rules and whether they should be limited to a ‘small’ sub-set of cases, it is our view that the consequences as they stand are appropriate (see question 19).