Section 75 credit card protection could be ‘watered down’

• The Government will change how credit cards and loans are regulated
• Vital refund protections could end up being changed or abandoned
• Customers can use Section 75 to get refunded when purchases don’t go to plan

A Government shake-up of financial regulations could see the Section 75 rules which protect customers when spending on their credit cards ‘watered down’. 

A Treasury consultation document confirmed plans to overhaul the Consumer Credit Act 1974. This is the law which regulates £200billion in debts every year, including credit cards, store cards, personal loans, payday loans and hire purchase deals. 

The exact changes are still being hammered out, but could impact consumers if vital refund protections end up being changed or abandoned. 

A key change to watch out for is what happens to credit card refunds, known as Section 75 protections.

Sarah Coles, head of personal finance at stockbroker Hargreaves Lansdown, said: ‘The Consumer Credit Act has ridden to the rescue for millions of people. So, the fact the government is planning to axe the Act is bound to be unsettling.

‘Those who responded to the consultation were keen to keep something along the lines of Section 75, but there were calls for some changes. This could strengthen some rights but endangers others.’

Section 75 protection means if a consumer buys something on credit worth between £100 and £30,000, the lender and seller are equally liable to sort the problem out if something goes wrong.

Customers are often able to get their money back using Section 75 in cases where a product hasn’t been delivered as promised, or a holiday has been cancelled, for example.  

The Treasury today said: ‘It is clear that consultees are supportive of change and the Government therefore intends to proceed with an ambitious approach to CCA reform.’

This is everything we know about how credit card and loan regulation might change in the future.

What is the Consumer Credit Act?

The CCA is 1974 legislation designed to bring in a single approach to regulating consumer loans. It still applies today, with minor tweaks over time.

Before the CCA, this sector was subject to a hodgepodge of different laws – and often no laws at all.

The CCA changed all that by bringing in rules around how lenders structure deals, advertise, end loans and set refund rights for consumers – chiefly, Section 75 rules.

The Office for Fair Trading oversaw the CCA until 2014, when it was handed over to the Financial Conduct Authority regulator.

What about the CCA is changing?

Two things. Firstly, the Government wants to overrule large parts of the CCA and let the FCA write its own rules around how it regulates debt.

The Government will be ‘repealing much of the CCA and recasting it in the FCA rulebook’, the Treasury said.

Partly that is because some rules need updating, and partly it is because the FCA does not have the powers it needs to carry on with some of the rules if the CCA ends.

A Treasury document on the changes said: ‘The CCA provides consumers with important rights and protections which protect consumers at both the pre-contractual and post-contractual stages of an agreement.

‘The consultation explained that the FCA’s current […] rule-making powers would not enable the FCA to replicate all of these rights and protections in its rulebook.’

Secondly, the overhaul also means being able to update the wording of the CCA, which is almost 50 years old.

These laws were brought in before inventions such as ‘buy now pay later’ loans, the internet and smartphones, for example.

Economic secretary to the Treasury Andrew Griffith said: ‘While it was well designed for its time, the CCA is increasingly under strain to deliver a 21st century customer experience.

‘The existing legislation is ill adapted to technology that was not conceived of almost 50 years ago. It poses challenges for financing emerging technologies like electric cars and enabling online customer journeys via smartphones.’

What changes could be on the table?

It is clear a lot of the CCA will be ripped up. However, exactly what will change is still up for grabs, and consumers will not see any differences for months or years yet.

But we do know that buy now pay later loans will be regulated as part of the changes.

The FCA could also improve how loan small print is worded.

At the moment, the CCA means lenders have to give pre-worded documents to customers before they can take out a credit card or loan, such as ‘pre-contract credit agreements’.

But experts like campaign group Fairer Finance say these documents, while well-meaning, are clunky, confusing and not understood by many consumers.

Fairer Finance wants to see these documents changed to be easier for consumers to interpret.

James Daley, the chief executive of Fairer Finance, said: ‘What’s frustrated me most about this market is that there are quite strict rules around what lenders must tell customers before they complete an application. More so than just about any other financial services market.

‘Unfortunately, some of these rules date back almost 50 years – and are not fit for today’s market which comprises many different types of credit product.’

This can be a problem when customers take out loans on devices with small screens, like smartphones.

The Treasury noted that ‘the prescription of form for information requirements means that firms are required to provide information in a way that is not compatible with smartphones, and that this leads to lower customer engagement with important information’.

What about Section 75 rules?

The good news for consumers is that there are no plans to scrap the jewel in the crown of the CCA – Section 75 refund rules.

Section 75 protections are likely to be kept, the Treasury said today.

The Treasury added: ‘Section 75 was generally seen as an important provision by industry and consumers, with some noting that it provides consumers with greater confidence to make purchases on credit. However, many consultees believed it could be modernised.’

Some lenders told the Treasury they wanted to see Section 75 rules watered down.

For example, when customers have a problem with something they buy on credit, some firms wanted to see lenders only be on the hook for the value of the loan itself, not the entire replacement value of a product.

Others wanted to see consumers first target sellers with refund requests before being able to ask the lender.

An FCA spokesperson said: ‘We are keen to make sure consumer credit regulation supports a well-functioning and competitive market whilst maintaining appropriate consumer protections.’