THE UK’S CONSUMER CREDIT ACT 1974: New evidence of its economic benefits

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29 Mar 2016

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The Consumer Credit Act 1974 (CCA74) was the first law in the UK that brought together all consumer credit related products under a unique regulatory framework. One of the main objectives of this law was to increase competition and improve consumer rights through the introduction of the publication of the true cost of lending – making credit issuers publish the annual percentage rate (APR) of their products.

The introduction of the CCA74 increased the outstanding volumes of consumer credit by three to six GDP percentage points. Moreover, it improved consumers’ understanding of the true cost of credit, as shown by the change in the relationship between interest rates and demand for credit during the 1970s and 1980s.

Finally, the CCA74 does not seem to have caused any inflationary pressures, a decrease in the volume of savings or instabilities of the economy in general. These are the findings of new research by Sergio Castellanos-Gamboa, to be presented at the Economic History Society’s 2016 annual conference.

The study does three things: 

  • First, it analyses the effect of the enactment of the CCA74 on the outstanding volumes of consumer credit during the period 1967 to 1986. 

  • Second, it studies the impact of the increase in the volumes of consumer credit on households’ savings, inflation and macroeconomic stability. 

  • Finally, it discusses the implications of these findings for our understanding of one of the most volatile decades in the history of the UK and the lessons we can learn for current debates on consumer credit regulation.

 The CCA74 was the result of a process that started at least in September 1968, when a committee under the chairmanship of Lord Crowther was appointed to analyse the regulatory environment concerning consumer credit. By that time, several different laws unsatisfactorily regulated consumer credit, so a piecemeal amendment of these laws wasn’t the optimal choice to improve regulation.

The Consumer Credit Bill was introduced in the House of Commons by the Conservative government in November 1973. After dissolution of the Parliament due to the two General Elections of 1974, the new Labour government presented it to the House of Lords. The fact that the Bill passed fairly swiftly through the Parliament and was re-presented by the Labour government after the General Election shows that this reform was in fact necessary and that there was a common agreement between both parties relating to this specific issue.

The 1970s was a very dynamic decade for the economic and political scene in the UK. Precisely during this decade Britain underwent a structural change that altered its economic growth path significantly. There was also a very radical change in the leading economic paradigm. Due mainly to the economic crises witnessed both in the UK and the United States, economists and later policy-makers went from Keynesianism – important government intervention – to a more free market framework, as proposed by Hayek decades before.

Economic crises and political turmoil were a constant worry for governments and the general population. With rising inflation and rising unemployment – the so-called ‘stagflation’ – the end of the Bretton Woods era and the Oil crisis of 1973, plus the many working-class strikes, introduction of a law that would increase the demand for consumer credit might have seemed contradictory. Nonetheless, this study uses novel data to contribute evidence that concludes that the passing of the CCA74 was beneficial for the British economy.


‘The economic effects of the Consumer Credit Act 1974’

Sergio Castellanos-Gamboa

Bangor University

Mobile: 07472391628

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