Plans laid out to bolster safeguards, improve inclusion and get a handle on buy now, pay later schemes.
- HM Treasury has today revealed plans to modernise consumer credit laws by reforming the Consumer Credit Act – which regulates all credit card purchases and personal loans.
- Plans to modernise the act aims to cut costs for businesses and simplify rules for consumers.
- A consultation on the direction of reform is expected to be published by the end of the year.
Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Rules governing the credit industry are in desperate need of modernisation to keep pace with new innovations and improve access to credit for those who need it most and have the ability to meet debt repayments.
“The need for an up-to-date and robust set of rules governing the credit market has never been more important amid the cost-of-living crunch. Recent figures from the Bank of England indicates that consumers are increasingly relying on debt, with an additional £1.4 billion borrowed in April.
“Attitudes to credit have change since the Act was introduced half a century ago. The growth in digital lending is happening due to changes in consumer behaviour. It is vital that safeguards are updated to account for this trend.
“More needs to be done to cater for consumers who struggle to access credit such as young adults, those who are self-employed, those who have moved to the UK from abroad and those who have previously been in financial difficulty.
“Credit scoring systems aren’t perfect – yet they are often treated as measures of fact. They can overlook some components, such as telecom and utility payments, as well as subscriptions to streaming services like Netflix and Spotify that might give a broader swathe of people access to credit.
“It is also important that language around credit is made clearer. The reason many borrowers get into difficulty is because they don’t fully understand the consequences of what they’re taking on.
“Buy now, pay later is the elephant in the room. The sooner these schemes are brought into the scope of regulation the better, as they can be a slippery slope into serious debt. Many BNPL services don’t subject customers to a ‘hard’ credit check that can leave a footprint on their credit report. As such, a key issue with BNPL is it may attract people who are already in the red and may be struggling to pay existing bills. This needs to change.”