‘This is the biggest shake-up in consumer credit in generations’

interactive investor comments on the reform of the Consumer Credit Act consultation.

• The government has today published a consultation on the modernisation of consumer credit legislation

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The reform of the Consumer Credit Act will mark the biggest shake up in consumer credit in generations.

“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. Safeguards will likely be updated to account for this trend.

“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.

“The advent of buy now pay later schemes is case in point. Adverts promoting BNPL schemes can be as clear as mud, and the worry is an increasing number of people are using such schemes without having a clear understanding of the key considerations, a slippery slope into serious debt.

“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 such as Netflix and Spotify that might give a broader swath of people access to credit.

“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.”