CONSUMER FINANCE: An Introduction

Overview  

2024 marks the 50th anniversary of the Consumer Credit Act 1974 – but never before has the consumer finance lawyer been in such demand. With the ever-increasing activity of claims management companies, the use of highly directed marketing campaigns, innovative legal funding arrangements and an unpredictable economic landscape, consumer finance has rightly, and for the first time, been recognised as a Chambers & Partners category in its own right. In a world in which businesses can quickly find themselves overwhelmed by complaints or litigation activity, strategic advice from those well versed in the intricacies of consumer finance is essential in order to develop a coherent business response to fend off such attacks.

The layers of legislation and practical knowledge required to navigate this area are not to be underestimated. Specialists who understand the complexities of the consumer credit landscape, and how courts and the regulator treat such matters, are required to sit at the crossroads between commercial and consumer law. At the contentious end of the spectrum, they handle both bulk litigation and high-profile test cases. The non-contentious end of the spectrum can be equally fast-paced, given the current speed of innovation in consumer finance products – with the unstoppable rise of fintech being the prime example.

Hot Topics 

Fuelled by the all-encompassing unfair relationship provisions and the long limitation periods recently confirmed by the Supreme Court in Smith v Royal Bank of Scotland, commission in all of its forms remains the lead generator of litigation. Whilst payment protection insurance and mortgage commission claims appear to be slowly petering out, motor finance commission claims are flooding in to fill the gaps. With the first battle for commission claims being the allocation decision, the effect, if any, of the creation of a new Intermediate Track as a carve-out from the Multi Track, primarily for claims with a value over GBP25,000 and under GBP100,000, is awaited. The fate of the remainder of the PPI litigation is likely to be dictated by the attempted GLO currently being contested in Birmingham and the highly anticipated Supreme Court decision in Canada Square Operations Ltd v Potter.

The advent of tech disruptors moving into the consumer finance space, combining both online offerings and novel products, has created lots of opportunities for consumer finance lawyers. Against the background of the fall-out from Wonga, and given the lack of expertise held by traditional money lenders, tech disruptors are heavily reliant on expert consumer finance advice. From the product development stage through to dealing with enforcement and customer complaints, the stewardship of lawyers who understand this area is invaluable.

At the other end of the credit lifecycle, debt sales and securitisations are still big business, with private equity and venture capitalists continuing to realise the scope for good returns. Such deals necessitate detailed reviews of previous compliance with consumer finance legislation and provide an insight into the potential consumer challenges. Appropriate advice at the deal stage may assist in avoiding hefty losses if bulk litigation subsequently snowballs.

Green finance continues to be a big-ticket item, particularly given the recent sharp increases in energy costs. Consumer finance lawyers deal with everything from the private financing of green home improvement products such as solar panels, ground source heat pumps and batteries, through to government initiatives such as the Green Deal scheme. These areas continue to generate complaints to the Financial Ombudsman Service and litigation. This is certainly an area to watch, particularly when the next elected government launches its green policy, and in light of the onward impact on green consumer finance.

The impact of Financial Ombudsman Service (FOS) decisions, particularly where bulk litigation is involved, continues to be felt in the consumer finance arena. The FOS is increasingly using test cases to manage its workload in the context of bulk litigation. Consequently, early advice on submissions to the FOS on the appropriate way to deal with consumer complaints is essential – particularly given the difficulties in interfering with FOS final decisions – as highlighted this year by R (on the application of Shawbrook Bank Ltd) v FOS, which upheld the FOS’ decision in the context of timeshare mis-selling claims. Underestimate the FOS (which, unlike the courts, is not bound to follow the law) at your peril.

2023 has also been the year of the much-discussed consumer duty. Whilst most firms’ integration of the duty into their systems and processes is now well underway, we wait to see what challenges are brought by the longer-term practical reality of the expansive duty and how it will rear its head in the form of consumer challenges in due course.

Legislative Reforms 

The long-awaited reforms to the Consumer Credit Act 1974 (CCA) remain outstanding. The government’s July 2023 consultation response confirms plans to overhaul the CCA by moving as much as possible of the regime into the Financial Services and Markets Act 2000 (FSMA), with a proposed repeal and recast approach. The intention of a simple lift and shift echoes the approach taken a decade ago when moving swathes of the CCA, including the licensing regime, into FSMA and the FCA Handbook. Experience has shown that this approach, with its tweaks in phraseology and definitions to ensure consistency within the FSMA regime, can create as many problems as it solves, given the highly technical consumer credit regime. The second consultation, expected in 2024, is keenly awaited.

Conclusion  

Consumer finance is an area where specialist knowledge is essential. Whilst bulk claims such as PPI have caused many to dabble in this area, true experts with a detailed understanding of the whole regime, how it has changed over time, how it relates to innovative new products, and its interaction with consumer, banking and regulatory law, are of vital importance for any business dealing with the complex world of consumer finance.