The Financial Conduct Authority (FCA) now has a higher duty when it comes to “consumer protection.” As of today, the regulator has a new standard when it comes to financial services oversight.
As outlined by the FCA:
“You should expect:
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- helpful and accessible customer support, so it’s as easy to sort out a problem, switch or cancel your product, as it was to buy it in the first place
- timely and clear information you can understand, so you can make good financial decisions. This means important information shouldn’t be buried in lengthy terms and conditions
- providers to offer products and services that are right for you, rather than pushing products and services you don’t need
- products and services to provide fair value. This should mean you won’t be ripped off or have to pay costs you didn’t expect. But while your provider should offer you a fair price, it doesn’t mean it will be the best deal for you, so you should still shop around
- firms to consider if you’re in a vulnerable situation when dealing with you. This could be due to poor health or financial troubles, for instance “
If you believe you have been harmed by a financial services firm, the FCA states you should reach out and inform them. Consumer rights regarding financial services are available here.
The consumer duty is described as a “significant shift” in expectations for financial services. A survey initiated by the FCA that kicked off in March 2023 indicated that most firms felt they were on track to comply with the new rules – but some were still preparing for the change.
Chris Kneen, Managing Director of UK & Ireland at Provenir, said the new rules come at a crucial time for consumers.
“Data shows that consumer lending, excluding student loans, reached over £28 billion in January 2023, surpassing the previous peak in January 2020 before the Covid pandemic. However, financial firms have become more cautious about lending money, tightening credit standards and moving away from speculative deals, making it harder for consumers, and SMEs, to access the financial support they require,” said Keen. “Consumer Duty is a proactive response by the government to the challenges faced by consumers and ensures that financial institutions adopt a consumer-centric approach to credit. For consumers, the new regulatory framework will bring about a range of positive changes. It will enhance affordability, address revolving line of credit issues, and prompt adjustments to product offerings throughout the customer journey.”
Keen called the change a “complete mindset shift” for financial firms adding that firms need to embrace technology to help them adhere to the rules.
Managing Director for EMEA at Provenir Frode Berg added that lenders must change the standard of their support for lenders which could lead to some individuals not qualifying for credit when previously they would be approved.
“Consumer Duty will have a significant impact on lenders’ credit risk assessment processes. To comply with the new rules, lenders will need to have a more holistic and accurate understanding of applicants and customers. This will require them to gather more data and insights into borrowers’ financial situations, including their affordability and potential signs of distress. Lenders will also need flexibility to quickly adapt their policies and the ability to test and deploy models quickly. Legacy systems will create challenges to bringing in new data sources and being able to make changes to processes and models in an agile manner.”
Overall, the impact will be positive Berg predicts, as borrowers will have access to more tailored products and lenders must consider affordability and vulnerability when considering a loan.
“The new rules will require lenders to prioritize customer outcomes and put the interests of their customers first. This will mandate a shift in the lending industry towards a more customer-centric approach,” said Berg.
Last week, Neil Kadagathur, co-Founder and CEO of Creditspring, shared his opinion on the new consumer rules:
“Clearly, much of the UK still distrusts lenders and other financial services firms – this isn’t surprising when millions have found it almost impossible to contact their providers for support,” said Kadagathur. “UK households are in desperate need of added protections in the cost of living crisis so the incoming Consumer Duty is hugely welcome news. There remains a stark lack of transparency across the sector, with many FS firms persisting with misleading information about charges, hidden fees and repayment terms, borrowers are in a hugely challenging position to make educated decisions about their finances.”
He added that their internal research indicates that more than half of consumers believe that lenders do not care about their financial well-being and are purely out to drive revenue.