Startup Coalition calls for reform of Consumer Credit Act

In their report launched today, Startup Coalition details how consumer credit regulations are letting down both consumers and Fintechs, having failed to adapt to changing technologies, consumer demands, and innovation in the market. They point to a rigid language in the legislation, an uncompetitive credit reference agency market which has led to decay and delay in adopting new technology, and a financial ombudsman service which is unfit for purpose.

Data published alongside the report paints a grim picture for overall consumer knowledge of their debt, at a time when most people see their debt stagnating or going up. A majority of respondents did not know the interest rate of their credit card, and 75% of those polled did not know who owns their credit score. Indeed, contrary to traditional rhetoric, young consumers consistently demonstrate a more robust understanding of credit, and are also more likely to be reducing their debt than older consumers.

The data also illustrates that the public is demanding more from the regulators and credit reference agencies: a majority of respondents want credit scores to be up to date and to be able to correct inaccuracies promptly and for free, while they also expect complaints to the ombudsman to be resolved in a few months, not the years it can take today.

In a stout rebuttal to the conventional pop-commentary on the rise of Buy Now, Pay Later, Startup Coalition’s data suggests that the products are used by all ages, not just the young, with 40% of consumers having used it in the last year. Whilst credit cards are the most popular credit product, 7 in 10 respondents preferred BNPL in principle when comparing an average consumer experience to the average experience of a credit card.

Consumer credit reform was announced as part of the Edinburgh Reforms by Jeremy Hunt in December last year but little progress has been made in the twelve months since, with a response to the consultation from earlier in the year seemingly on ice. Meanwhile, BNPL remains unregulated.

Startup Coalition contends that the missing ingredient has been political leadership in driving the change forward and that only through a wholesale, ambitious review of the consumer credit regulatory framework can consumers truly be served and protected in the 21st century.

Among their proposed changes, Startup Coalition calls for the targeted transition away from the outdated Consumer Credit Act to FCA-owned rules. They also call for steps to promote competition in the consumer credit referencing market, which is dominated by three firms which have failed to deliver for consumers and keep up with technological innovation, locking five million Brits out of credit. They also call for improvements to the Financial Ombudsman Service, which is despised by both consumers and firms alike for its slow and inconsistent judgements.

Commenting on the report, Startup Coalition’s Fintech Lead Luke Kosky said, “While the complexity of the consumer credit market has made progress slow we must not allow the scale of the challenge to jeopardise our ambition. Only a fully reformed credit market, with a repealed CCA, can handle innovation and protect consumers for the future.”

Commenting on the release, Will Mason, Founder and CEO of Infact Systems said: "The consumer credit market and the underlying technologies used by modern financial services businesses has fundamentally changed since existing legislation was brought into effect.

The current legislative and regulatory frameworks do not support the way that consumers use credit and how access to that credit is provided. We welcome the reform of the Consumer Credit Act to support more digital adoption of financial services, modern consumer behaviour, innovative credit providers, and changes in rules based regulation. We also welcome the concurrent review of the Credit Information Market Study.

We see that the next few years are an exciting time to be at the forefront of innovation in credit and credit information driving towards greater financial inclusion, consumer protection, transparency and better consumer outcomes. It feels like we are on the cusp of a significant shift from a market dominated by incumbents protecting their own interests towards a market that is designed to serve end consumers properly.”

Commenting on the release, Jim Fell, CEO & Founder of Credit Canary said: “Interest rate rises, credit contraction and new regs imposing higher standards on firms create a perfect storm where consumer credit reform is now a priority. The Startup Coalition argue technological and behavioural shifts require a framework enabling regulation to evolve apace, embedding optimal customer outcomes whilst supporting innovation and financial inclusion."