FINANCIAL firms have been ordered to end rip-off charges and fees as part of new rules to protect customers.
The Financial Conduct Authority (FCA) is asking firms to also make it easier to cancel or switch products and to improve customer support waiting times.
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Information about products should also be helpful and accessible.
Examples of rip-off fees include buy now, pay later firms charging 0 percent interest and then raking in cash in charges, the FCA said.
The regulator also highlighted financial products where the fees are more expensive than any benefits offered.
However, customers will have to wait until 2024 for the new Consumer Duty rules to be fully implemented.
Initially, companies will have 12 months to make changes to existing products and services.
They will then have a further 12 months to bring older products up to scratch.
Rocio Concha, Which? director of policy and advocacy, said: “There are too many instances where the financial services market does not meet consumer needs or provide customers with adequate protection.
“Strong consumer protections are always needed, but at a time when household budgets are being squeezed by a cost-of-living crisis, they are even more essential.”
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There are a number of bad practices that the FCA wants to tackle to help consumers.
We took a look at some of them:
Buy-now-pay-later
The FCA plans to tackle some firms who offer buy-now-pay-later products at 0% that come with high default fees.
Some companies are targeting consumers who are on low incomes, or have poor credit ratings – people who might be more likely to default.
When do people default, the company charges them high fees.
So although going on a 0% product seemed like a good idea, consumers get bitten if they have problems paying their instalments.
Under the new rules, the FCA wants firms to consider whether pricing structures like this could cause harm to people.
Stamp out “rip-off” charges
The FCA is also trying to stamp out “rip-off” charges and fees.
Some firms charge unfair servicing fees, which are paid for services like keeping a record of payments.
Servicing fees usually come as a percentage charge in relation to the size of a loan, investment or savings.
But sometimes people pay much more than others for these services – this is despite the services costing the same to provide.
Other unfair fees the FCA wants to ban include some fixed fees on products.
For example, multiple fixed fees on customers with a small amount of funds invested might result in overall poor value.
The new rules would try and stop this from happening.
Bad mortgage lending
Some mortgage firms are engaging in lending that could lead to significant harm to borrowers in financial difficulty, according to the FCA.
This can happen when the payments a borrower is making are less the interest that is building up.
When firms add unpaid fee charges to somebody’s balance, it can make things even harder for them, and ultimately they might lose their home.
These problems get even worse when there are higher interest rates.
Under the new rules, a firm will need to act in a way that avoids the foreseeable harm caused by an escalating balance, and make sure consumers are able to make “effective, timely and properly informed decisions”.
