The United Kingdom’s consumer credit regime is set for its most significant overhaul in over 50 years. The Government plans to update the Consumer Credit Act 1974, replacing detailed statutory rules with a more adaptable framework overseen by the Financial Conduct Authority. This will change how lenders are regulated and how claims are brought.

Why Reform Is Needed

The current regime is highly technical and was designed for a pre-digital age. As a result, it can be difficult for consumers to navigate, lacks the flexibility needed in a modern lending market, and can sometimes impose penalties that do not reflect the seriousness of the breach. Under the existing law, even minor technical errors can have significant consequences, including rendering credit agreements unenforceable.

The aim of the reforms is to simplify the law, make it easier for consumers to understand their rights, and support innovation, while still maintaining appropriate protections.

A Framework Centred on Consumer Outcomes

Under the new approach, much of the detailed legislation will be replaced by rules set by the Financial Conduct Authority within the wider financial services framework. The emphasis will shift away from strict technical compliance and towards a more practical question: have consumers been treated fairly?

The Consumer Duty: Where It Comes From and What It Means

At the centre of the new regime is the Financial Conduct Authority’s Consumer Duty.

The Consumer Duty was introduced by the Financial Conduct Authority in July 2023, using its existing powers under the Financial Services and Markets Act 2000. It applies across all regulated financial services, not just consumer credit, and sets a higher standard of care than previous regulatory expectations.

The Duty is built around a central principle: firms must act to deliver good outcomes for their customers.

In practical terms, this means that firms are expected to:

Act in good faith towards their customers
Avoid causing foreseeable harm
Support customers in pursuing their financial objectives throughout the life of a product

Rather than focusing on whether specific procedural steps have been followed, the Consumer Duty asks whether the customer has genuinely been treated properly. Under the proposed reforms, this standard will become the primary benchmark for assessing how lenders treat borrowers, replacing much of the prescriptive detail found in the Consumer Credit Act 1974.

Impact on Claims

One of the most important changes is likely to be the reduced emphasis on claims based purely on technical defects. Many of the automatic sanctions currently attached to such defects are expected to be removed. Instead, the focus will shift towards issues such as:

Mis-selling
Inadequate or unclear information
Unfair treatment

The key question will increasingly be whether the consumer has suffered real unfairness, rather than whether there has been a technical breach of the rules.

Key Protections That Will Continue

Importantly, some core protections will remain in place, including:

Section 75 rights against lenders, which allow borrowers to bring claims directly against a lender where a supplier has misrepresented a product or breached the contract; and
Unfair relationship claims under section 140A, which allow the court to step in where the lending relationship is unfair and to grant wide-ranging remedies, including reducing what the borrower owes or awarding compensation.

Together, these provisions continue to provide essential routes to redress through the courts, particularly in cases where borrowers have been misled or treated unfairly.

Transition: Two Regimes Running in Parallel

On 18 May 2026, the Financial Conduct Authority confirmed that it will consult on how the new rules will work in practice. For a period, two systems will operate side by side:

1. Existing agreements will continue to be governed by the Consumer Credit Act 1974.
2. New agreements will fall under the Financial Conduct Authority’s rules.

The legal position will therefore depend on when the credit agreement was entered into. Timing may affect the remedies available and the strength of a potential claim.

At the same time, the Financial Ombudsman Service is likely to play an increasingly important role, concentrating on what is fair and reasonable rather than strict legal technicalities.

Looking Ahead

The direction of travel is clear: there will be less focus on technical errors and much greater emphasis on fairness and consumer outcomes, underpinned by a more adaptable, regulator-led system. That said, the courts will continue to offer a strong and effective route to redress in key areas, particularly where there are allegations of misrepresentation under section 75 or an unfair relationship under section 140A.
In practice, this means that future claims are likely to depend less on legal formalities and more on demonstrating that the borrower has genuinely been treated unfairly.

Our team specialises in advising on consumer credit disputes and redress, helping businesses and consumers navigate the regulatory frameworks that govern fair treatment, complaint handling and compensation under Consumer Duty requirements and the new consumer credit rules. We provide practical, strategic legal advice to help clients understand their exposure, assert their rights and achieve effective redress outcomes. For questions or assistance in this area, please contact Valerie Sweeting, David Greene, or any other member of our Commercial Disputes Team.

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