A new consumer duty has come into force, setting a higher bar for financial firms and giving customers more certainty that the product they are taking out does exactly “what it says on the tin”.
Overseen by the Financial Conduct Authority (FCA), it sets higher and clearer standards of consumer protection across financial services, requiring firms to put customers’ needs at the heart of what they do.
The impacts of the new duty will be far-reaching, weaving through the design of financial products through to the way firms treat their customers.
Over time, it is hoped the duty will improve trust and confidence in financial services.
It could help to prevent rip-offs, unexpected charges, and potential future mis-selling scandals from happening in the first place.
Under the duty, firms will have to provide products which are fit for purpose, offer fair value and work as the customer expects.
The duty could also potentially help prevent people from being sold unnecessary “add-ons” to financial products, stopping them from wasting money.
Firms should also be able to explain and justify their pricing decisions.
Nisha Arora, director of cross-cutting policy and strategy at the FCA, said: “People should know what they are paying and know what they are getting for what they pay.”
Asked what consumers will see from the higher standards, Ms Arora said firms will have to actively support and enable their customers to achieve their financial objectives.
“It’s about helping their customers, rather than just sitting back,” she told the PA news agency.
“If we translate that into practice and the whole consumer journey, if I want a product or a service, I will know that it’s fit for me, it’s fit for use, it’s the right thing for me and it offers fair value, so I’m not being ripped off.
“I will also get communications at the right time, and that I can understand and can help me make decisions.
“It’s really important consumers still shop around for the best deals, but firms need to give them the right information so they can make those decisions.”
Firms will have to provide helpful and responsive customer service under the duty and be timely and straightforward in how they communicate.
What we want (firms) to do is make it easy to switch, complain, move product or service— Nisha Arora, Financial Conduct Authority
Processes for complaining, switching and cancelling products should also be straightforward.
Ms Arora said: “What we want (firms) to do is make it as easy to switch, complain, move product or service, as it was to come in, and not have to go through all those hoops and hurdles to make things happen.”
There have been some recent signs of firms improving their savings offerings ahead of the duty, following criticism from various sources that rate rises were not being passed on quickly enough.
Under the duty, the FCA expects firms to have a strategy to keep savers adequately informed of available rates across their products and how they may benefit from switching to an alternative.
Together with the Information Commissioner’s Office (ICO), it recently wrote to UK Finance and the Building Societies Association (BSA), clarifying that savings providers can inform their customers of the best rates available to them, even where they have objected to direct marketing.
Ms Arora said: “In all markets, including in the savings market, the consumer duty will require all products to be fair value. If there are different groups of customers, each of them have to get fair value.
“They might have different rates, but they all need to be fair value. And importantly, the communications need to be there to enable and support customers. (Firms) have to give them the right information.
“If someone is on a lower rate, they should point them to better rates that may be available. Now, it’s up to the customer to decide what to do and they need to shop around.”
Vulnerable customers’ needs are also at the heart of the new duty.
The FCA’s financial lives survey previously indicated adults with characteristics of vulnerability were more likely to report that customer support services did not help them at all to achieve what they wanted to do.
Ms Arora said firms will be expected to understand the needs of vulnerable customers, adapt and be flexible.
She said: “It might be around designing products that are suitable for the market, it might be around communicating in a particular way that’s helpful and supportive.”
Asked whether there might be a risk that firms could be more inclined to “screen out” some customers for products, Ms Arora told PA: “We’ve taken this very seriously because what we don’t want is unintended consequences with products either being withdrawn from the market or customers being declined appropriate products.
“If a product, though, is unaffordable or not appropriate, then obviously we don’t want it to be offered to the customer.”
She said the regulator has already taken several steps, including being very clear and supporting firms, so “actually these are higher standards, but they are achievable by firms”.
Ms Arora also pointed out the communications requirements for firms under the new duty will help consumers to access products.
Businesses have been gearing up for the new duty, and the regulator expects firms to have had clear oversight, from the top, of their implementation plans.
The FCA has been supporting firms with guidance, webinars and letters.
Ms Arora said: “I’m really pleased by the progress that many firms have made in getting ready for this. But we will be ready to enforce if we see non-compliance that drives harm, and creates harm, for consumers.
“We have started our monitoring and we will be continuing to gather data from firms. We will be ready to supervise and enforce to make sure that the duty really is driven home.”
Rocio Concha, Which? director of policy and advocacy, said: “Whether you have a bank account, insurance policy, mortgage, credit card or want to take out a loan, the consumer duty is clear that firms should ensure that the product and service meets customers’ needs, offers fair value and that customers have enough information to make an informed choice and are supported throughout.
“The duty should have wide-ranging consequences. In practice, it should mean that the terms and conditions of insurance policies are easy to understand, that banks alert customers of better savings rates, and that lenders proactively help any mortgage customers in financial difficulty with tailored support.
“Which? expects the regulator to take tough enforcement action should firms fall below the required standards.”
