Section 75 credit card protection could be ‘watered down’

A shake-up of government financial regulation could cause the Section 75 rules that protect customers when spending with their credit card to be “watered down.”

A consultation paper from the Treasury Department confirmed plans to review the Consumer Credit Act 1974. This is the law that regulates £200 billion in debt every year, including credit cards, store cards, personal loans, payday loans and hire purchase agreements.

The exact changes are still being worked out, but could impact consumers if vital refund protections are eventually changed or discontinued.

An important change to watch out for is what happens to credit card chargebacks, otherwise known as Section 75 protections.

Sarah Coles, head of personal finance at stockbroker Hargreaves Lansdown, said: “The Consumer Credit Act has helped millions of people. So the fact that the government intends to abolish the law will certainly be disturbing.

‘Those who responded to the consultation were keen to keep something along the lines of Article 75, but some amendments were advocated. This can strengthen some rights, but endanger others.’

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

Customers can often get their money back by using Article 75 if, for example, a product has not been delivered as promised or a holiday has been cancelled.

The Ministry of Finance said today: “It is clear that consulted parties support change and therefore the government intends to continue with an ambitious approach to CCA reform.”

Here’s everything we know about how credit card and loan rules may change in the future.

What is the Consumer Credit Act?

The CCA is legislation from 1974 designed to introduce a single approach to regulating consumer lending. It still applies, with minor adjustments over time.

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

The CCA changed all that by introducing rules about how lenders structure deals, advertise, terminate loans and set consumer repayment rights — primarily Article 75 rules.

The Office for Fair Trading oversaw the CCA until 2014 when it was transferred to the regulator of the Financial Conduct Authority.

What will change in the CCA?

Two things. First, the government wants to override large parts of the CCA and let the FCA write its own rules on how it regulates debt.

The government will “repeat and recast much of the CCA in the FCA rule book,” the finance ministry said.

Partly that’s because some rules need to be updated, and partly because the FCA doesn’t have the powers necessary to continue with some rules if the CCA ends.

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

‘The consultation explained that the FCA is up to date […] regulatory powers would not allow the FCA to replicate all of these rights and protections in its rulebook.”

House of cards: Consumers must grapple with a confusing mass of credit card documents

Secondly, the revision also means that the wording of the CAC, which is almost 50 years old, can be updated.

These laws predate inventions such as ‘buy now, pay later’, the internet and, for example, smartphones.

Economics Finance Minister Andrew Griffith said: ‘While well designed for its time, the CCA is under increasing pressure to deliver a 21st century customer experience.

“Existing legislation is ill-adapted to technology that was not conceived almost 50 years ago. It poses a challenge to financing emerging technologies such as electric cars and enabling online customer journeys via smartphones.”

What changes could be on the table?

It is clear that much of the CCA will be torn apart. However, what exactly will change is still up for grabs and consumers won’t see a difference for months or years to come.

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 fine print is worded.

Currently, the CCA means that lenders must provide pre-drafted documents to customers before they can take out a credit card or loan, such as “pre-contractual credit agreements.”

But experts such as campaign group Fairer Finance say these documents, while well-intentioned, are clumsy, confusing and misunderstood by many consumers.

Fairer Finance wants these documents changed to make them easier for consumers to interpret.

James Daley, the CEO of Fairer Finance, said: ‘What frustrates me most about this market is that there are quite strict rules about what lenders have to tell customers before they apply. More than just about any other financial services market.

“Unfortunately, some of these rules date back almost 50 years – and are not suitable for today’s market, which consists of many different types of credit products.”

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

The Treasury Department noted that “prescribing forms for information requirements means that companies have 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 the rules of Article 75?

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 enforced, the Treasury said today.

The Treasury Department added: ‘Section 75 was generally seen as an important provision by industry and consumers, with some noting that it gives consumers more confidence to make purchases on credit. However, many of those consulted were of the opinion that it could be modernised.’

Some lenders told the Treasury that they wanted to water down the Section 75 rules.

For example, if customers have a problem with something they buy on credit, some companies wanted lenders to pay only for the value of the loan itself, not the full replacement value of a product.

Others wanted consumers to turn to sellers with refund requests before asking the lender.

An FCA spokesperson said: “We are keen to ensure that consumer credit regulation supports a well-functioning and competitive market, while maintaining appropriate consumer protections.”