Credit, Collections & Insolvency News
The Financial Conduct Authority (FCA) has confirmed its plans to bring in a new Consumer Duty, which it says will fundamentally improve how firms serve consumers and also will set higher and clearer standards of consumer protection across financial services, requiring firms to put their customers’ needs first.
The Duty is made up of an overarching principle and new rules firms will have to follow. It will mean that consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it.
Clarity on the FCA’s expectations and firms focusing on what their customers need should lead to more flexibility for firms to compete and innovate in the interests of consumers.
The Duty forms part of the FCA’s transformation to becoming a more assertive and data-led regulator. With firms assessing how they’re meeting their customers’ needs, the FCA will be able to quickly identify practices that don’t deliver the right outcomes for consumers and take action before practices become entrenched as market norms.
The Duty will include requirements for firms to:
The FCA is giving firms 12 months to implement the new rules for all new and existing products and services that are currently on sale. The rules will be extended to closed book products 12 months later, to give firms more time to bring these older products, that are no longer on sale, up to the new standards.
Sheldon Mills, Executive Director of Consumers and Competition, said “The current economic climate means it’s more important than ever that consumers are able to make good financial decisions. The financial services industry needs to give people the support and information they need and put their customers first.”
“The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards. As the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”
Responding to the announcement, Peter Tutton, StepChange Head of Policy, Research and Public Affairs, said “StepChange has always believed the Consumer Duty has the potential to be a game-changer, requiring firms to think beyond compliance box ticking and embedding a far richer focus on preventing harm and delivering good outcomes for consumers. We’re pleased that the FCA’s final decisions on implementing the new duty will embed these objectives even more fully than in the original consultation. This valuable cultural shift will have consequences not just for regulated firms but also for the FCA itself, and we look forward to working constructively across the credit market to help support it.”
“With the FCA now putting greater emphasis on embedding true accountability within firms and monitoring outcomes, financial services consumers will in future be better protected from harm, including the risk of reasonably foreseeable debt problems or product features that exploit them. In the meantime, it’s worth remembering that paying due regard to a customer’s circumstances has always been the regulator’s expectation of firms; the implementation period should be seen as an opportunity to bolster good practices and culture.”
Joanna Elson CBE, Chief Executive of the Money Advice Trust, said “The introduction of a new consumer duty is a watershed moment in consumer protection in financial services and builds on the FCA’s work, in recent years, to improve support for people in vulnerable circumstances.”
“At a time when millions of peoples’ finances are under huge strain, I am encouraged by the regulator’s emphasis on higher and clearer standards of protection, which should provide greater clarity to consumers and firms alike. As we have seen in our vulnerability training we run with creditors, there is a willingness from firms to improve their support for customers, and many will be able to build on this existing work.”
“Preventing harm from occurring in the first place, however, will require a proactive approach from both firms and the regulator. For firms, this will need to include applying inclusive design principles at the outset of any new product. And the FCA will need a robust process to stop poorly designed products from entering the market in the first place and to take swift action if and when harm does occur.”
“We look forward to working with firms to achieve these aims and to meet the standards required of them.”
Fiona Hoyle, Director of Consumer and Mortgage Finance at the Finance & Leasing Association said “The consumer credit industry fully supports the underlying principle of the Consumer Duty – that consumers receive clear information about products and services that meet their needs and offer fair value, and that customer support is there when needed.”
“However, today’s announcement thrusts the full responsibility for achieving this objective onto lenders, when in actual fact the real problem is the outdated and opaque, but nonetheless prescribed, information required to be sent to customers by the Consumer Credit Act (CCA).”
“It is imperative that HM Treasury’s previous agreement to reform the Consumer Credit Act (CCA) is taken forward at pace.”
“While we welcome the extension of the implementation deadline for the new Consumer Duty rules, it remains a mammoth task for firms to complete the required work within this timeframe.”
Neil Kadagathur, Co-Founder and CEO of Creditspring, said “UK households have been in desperate need of added protections in the cost of living crisis so the Consumer Duty is hugely welcome news. The crisis is highlighting just how perilous people’s budgets are and the UK’s reliance on credit with millions forced to borrow to survive the next couple of months as inflation worsens and the impact of the next energy cap spike is felt. It is vital that these people are protected from unscrupulous lenders charging extortionate repayment terms.”
“Ending high borrowing charges and fees will provide a lifeline for households who otherwise risk falling into an unmanageable debt spiral. By forcing lenders to provide clear and accurate information around charges and repayment terms, borrowers are empowered to make improved financial decisions. It also boosts trust in the sector as currently many people avoid contacting lenders when they need financial support. We previously found 75% of people believe that lenders are only out to make a profit and 43% believe they’re encouraged to borrow more than they can afford.”
“Creditspring’s no-interest, subscription model is saving its members £17m in borrowing costs by offering a no-interest alternative to high-cost credit options whilst enabling them to build their credit files to unlock access to mainstream credit in future.”
Chris Hill, CEO, Hargreaves Lansdown said “We welcome the FCA’s intention to use the consumer duty to create more flexibility for firms to compete and innovate in the interests of consumers. This is exactly what our digital transformation at HL is all about. We are investing in more tools and nudges to drive better client outcomes.”
“With the consumer duty in place, we are keen to see the FCA revise its own rule book, to remove regulations which hinder innovation in the interests of consumers. There is scope for us to personalise guidance to clients to a greater extent, to drive engagement and better outcomes. We look forward to working with the FCA on this agenda as we embed the consumer duty at HL.”