Regulatory Influencer: Reformed Regimes – Preparing for the UK and EU Consumer Credit Overhaul

On October 30, 2023, the European Union published Directive (EU) 2023/2225 (Consumer Credit 2 – CCD2) in the Official Journal of the European Union. Repealing Directive 2008/48/EC (Consumer Credit Directive – CCD), CCD2 lays down a reformed common framework for the harmonisation of certain aspects of the laws, regulations and administrative provisions of member states concerning credit agreements for consumers.

Subsequently, on May 19, 2025, the UK government launched a consultation on proposed reforms to the Consumer Credit Act 1974 (CCA). Published alongside the government’s response to the consultation on buy now, pay later (BNPL) products, the proposal aims to deliver a modernised, consumer-centric credit regulatory regime.

The UK government set out its proposal in two phases:

• Phase 1 – Published on May 19, 2025, a consultation addressing the government's approach to the regime, as well as information requirements, sanctions and criminal offences. The consultation closed on July 21, 2025.
• Phase 2 – Expected in Q1 2026, a consultation addressing the scope of the regulation, key definitions and consumer protection. 

Given the upcoming November 20, 2026 application date of CCD2, the July 15, 2026 application date of the UK’s deferred payment credit (DPC) regime and the expected phase 2 consultation of the UK rules, this regulatory influencer will examine the necessity of the changes, the jurisdictional approaches, as well as provide a comparison of the two. 

The bigger picture – A response to modern challenges

Consumer credit has become a growing necessity in recent years, with the UK’s Financial Conduct Authority (FCA) in 2024 finding that 84 percent of UK adults held at least one credit or loan product in the previous 12 months. The same report found that, of those with personal loans, some 1.6m UK adults used those loans to cover everyday expenses. Despite this, the preceding regulatory regimes governing both the UK and EU have failed to keep pace with the rapid evolution of the market.

For instance, in the EU, in November 2020, the European Commission found that the CCD has only been partially effective in ensuring high standards of consumer protection and fostering the development of a single market for credit. The issues found ranged from imprecise wording of the directive, to wider market developments linked to digitalisation. 

Meanwhile, the UK’s primary regulatory regime remains anchored in the Consumer Credit Act of 1974. Drafted in an era of paper contracts and face-to-face banking, its highly prescriptive statutory requirements are equally ill-equipped to handle the speed, flexibility and innovation of today's digital credit landscape. 

HM Treasury outlined several key issues with the UK’s CCA regime, including: 

• Prescriptive, confusing and duplicative: certain provisions are excessively prescriptive, are duplicative and provide for an overall rigid approach.
• Inflexible: the rigidity of the regime means that firms can find it difficult to develop new products.
• Complex: conduct requirements are now spread across multiple sources, with several overlapping requirements.
• Disproportionate: certain CCA provisions have sanctions attached for non-compliance which are disproportionate. 

Furthermore, both regimes predated BNPL and related products. As highlighted in the European Commission’s report, these are products which “pose particular risks for consumers as charges related to them may be either very high from the outset or increase rapidly over time, thus bearing the risk of sending the consumer into a spiral of debt”.

The EU’s response

To address the gaps of its predecessor, CCD2 drastically expands the regulatory perimeter, effectively capturing all credit agreements with a few targeted exceptions. The directive excludes:

• Credit agreements secured by a mortgage or comparable security.
• Agreements involving a total credit amount exceeding €100,000 (with certain exceptions).
• Free deferred payments of an existing debt.
• Specific deferred payments where a supplier (without a third-party lender) gives a consumer time to pay, provided the credit is interest-free, incurs no charges beyond legally capped late fees and is fully executed within 50 days of delivery.

Under this broadened framework, a credit agreement is defined as any arrangement where a creditor grants, or promises to grant, a consumer credit via a deferred payment, loan or similar financial accommodation. 

Where CCD2 applies, it imposes a highly prescriptive regime. To understand the sheer breadth of the directive, its requirements can be grouped into several pillars:

• Pre-contractual requirements: strict rules on pre-contractual information, mandatory creditworthiness assessments, database access and prohibitions on tying, bundling and the unsolicited granting of credit.
• Contractual rights: dictating the form, content and modification of credit agreements, alongside robust consumer rights regarding withdrawal, termination, early repayment and overdraft facilities.
• Pricing and support: requirements relating to borrowing rate limits and total costs, paired with obligations to provide proactive support for consumers in financial difficulties.
• Conduct of business: this includes staff knowledge requirements, rules for creditors and credit intermediaries, dispute resolution mechanisms, as well as requirements for creditors and credit intermediaries to act honestly, fairly, transparently and professionally. 

Of particular note is CCD2’s modernised approach to pre-contractual information and advertising. Although the original CCD simply required standard information, such as the borrowing rate, total credit and APR, to be presented in a "clear, concise and prominent manner", CCD2 directly addresses the digital age. The new directive mandates that this information must be easily legible or clearly audible and actively adapted to the technical constraints of the medium used (for example, a smartphone). Advertisements must also explicitly specify:

• The fixed or variable borrowing rate, including particulars of any charges in the total cost of credit.
• The total amount of credit.
• The annual percentage rate of charge (APR).
• The duration of the credit agreement (where applicable).
• The total amount payable by the consumer and the installment amounts.
• In the case of credit in the form of deferred payment for specific goods or services, the cash price and the amount of any advance payment.

Other notable inclusions include: 

• A 12 month and 14 day right of withdrawal after the conclusion of a consumer loan agreement.
• The right for human review of an automated creditworthiness assessment. 

The UK’s response 

Although the UK’s proposals are not yet final and complete, HM Treasury’s overarching strategy is to repeal the vast majority of the CCA’s rigid statutory provisions and recast them as adaptable rules within the Financial Conduct Authority (FCA) Handbook. According to the government’s consultation paper, this shift from primary legislation to an outcomes-based regulatory model will create a much more flexible, future-proof regime.

Within phase 1 of the reform, the UK sets out: 

• Information requirements: the government plans to repeal all prescriptive information provisions in the CCA and its accompanying regulations. This overhaul impacts pre-contract disclosures, post-contract statements, and arrears and default notices. In its place, the FCA will design new, digitally friendly rules that ensure consumers genuinely understand their agreements, aligning with the FCA's overarching Consumer Duty.
• Sanctions regime: the UK intends to repeal the CCA’s automatic statutory sanctions, such as rendering an agreement completely unenforceable or disentitling lenders to interest due to minor technical errors. This move aims to bring consumer credit enforcement into line with the rest of the financial services sector, relying instead on the FCA's broad supervisory powers to penalise genuine consumer harm.
• Criminal offences: acknowledging that many of the CCA's criminal offences are outdated, the government has set out three possible approaches for reform:
  • Repeal all criminal offences in the CCA, relying entirely on the FCA to take civil enforcement action where appropriate.
  • Retain all existing criminal offences within the CCA.
  • Adopt a hybrid approach, where the majority of the offences are repealed, but those specifically designed to protect vulnerable consumers (such as offences relating to minors and door-to-door canvassing off trade premises) are retained.

Separate from the broader, long-term CCA reforms, the UK has taken targeted action to close the BNPL loophole. On February 11, 2026, the FCA published Policy Statement (PS) 26/1, setting out the final rules for regulating BNPL, also known as DPC. Similar to the EU, this PS confirms that short-term, interest-free products provided by third-party lenders will be firmly integrated into the regulatory perimeter as of July 15, 2026.

For more information on the UK’s BNPL reforms, see: Regulatory Influencer: The FCA’s BNPL Rules to Reshape the Instalment Credit Market in the UK. 

A comparison 

Although the UK’s broader consumer credit reforms are not yet final and possess a different regulatory philosophy from the EU’s initiatives, similarities can be seen in their underlying objectives. Ultimately, both jurisdictions are responding to the same market conditions – the rise of digitalisation and novel approaches to providing consumer credit. 

At their core, both regimes are significantly expanding their regulatory perimeters. Both the EU’s CCD2 and the UK’s incoming DPC framework deliberately capture BNPL products, ensuring these rapidly growing providers are held to the same high standards as traditional lenders. CCD2, however, takes this a step further with a blanket approach, applying to all consumer credit agreements except for explicitly defined exemptions. For the UK, while BNPL has been proactively addressed, the exact scope of the broader reformed regime will not be firmly defined until the expected phase 2 consultation.

Similarly, both regulators have recognised that pre-contractual disclosure requirements need to be revised. Given the rise of digital interfaces for consumer credit applications and disclosures, CCD2 explicitly mandates that information must be adapted to the "technical constraints of the medium". The UK is addressing this same challenge within its phase 1 consultation by proposing the repeal of the CCA's highly prescriptive, paper-based information provisions. By transitioning these requirements to the FCA Handbook, the UK intends to facilitate streamlined, digitally optimised disclosures that prioritise genuine consumer comprehension over rigid statutory compliance.

Still, a core structural distinction remains. Following in line with other recent EU legislative acts, such as Regulation (EU) 2022/2554 (Digital Operational Resilience Act – DORA), CCD2 is highly prescriptive in its execution. For instance, CCD2 contains, within Annex I, a rigid pre-contractual information template. This mandatory template is heavily supplemented by explicit, standardised information requirements set out under Article 10. In contrast, by transitioning its statutory requirements to the FCA Handbook, the UK’s reformed regime will be far more agile and outcomes-focused. This shift away from primary legislation aligns with the UK’s wider, principles-based philosophy for financial regulation. 

Future consideration 

Given the regulatory developments in the EU and UK, firms operating in those jurisdictions must begin preparations. For EU operators, the timeline is clear: CCD2 becomes applicable on November 20, 2026, giving firms a hard deadline to overhaul their internal systems and frameworks. 

However, the transition from an EU directive to national law is rarely seamless. As of March 2026, only six jurisdictions have transposed CCD2 into their local frameworks (see Mapping EU Legislation: Directive (EU) 2023/2225 (Consumer Credit Directive 2 – CCD2)). The inclusion of optional derogations also means that CCD2 will not look the same in every member state, making jurisdictional nuances an inevitable challenge for cross-border operators.

In comparison, the UK presents a staggered timeline. Although BNPL providers must be ready to enter the temporary permissions regime by July 15, 2026, the wider CCA reforms remain on the horizon. With the UK's phase 2 consultation expected in early 2026, traditional lenders are currently in limbo. 

Nonetheless, the direction of travel within these two jurisdictions is clear. Whether in the UK or the EU, firms will need to grapple with a revitalised regulatory framework, with expanded scope and greater consumer-focused expectations. Firms that embrace the changes earlier will be best positioned to thrive.