MILLIONS of people will reap rewards when the financial regulator introduces a new Consumer Duty.
The new rules from the Financial Conduct Authority (FCA) force financial firms to set higher standards to help protect customers.
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Banks and insurers and other companies offering financial products will have three main responsibilities: to act in good faith towards customers, avoid foreseeable harm and support customers to pursue their financial objectives.
This will involve improving communication with consumers, like simplifying complex and long-winded terms and conditions.
The Consumer Duty will come into force from Monday, July 31.
Not all changes will necessarily be immediate, as the rules act as guidelines for how firms should treat customers.
The FCA has already hinted that some firms could fall short of the new regulations.
It revealed this week that 7.4million people, many of them the most vulnerable, have struggled to even get in touch with their financial service providers in the last 12 months.
But Sheldon Mills, executive director, consumers and competition said: “Our Consumer Duty will guide our ongoing work to improve the way firms provide customer support – getting through to your provider is the starting point for receiving help, so we will be working with them to improve in this area.”
In the long term, anyone who opens a bank account, takes out a financial product, or borrows money stands to benefit from the new Consumer Duty.
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We spoke to James Daley, managing director of Fairer Finance, the independent consumer group and ratings provider, who explains how this new regulation could have an impact on you.
1. Clearer communications
Financial firms will be forced to up their game when it comes to customer communications.
James said: “Over the coming months this will see companies completely rework their terms and conditions to make.
“They’ll eventually be shorter and easier for the average customer to understand.”
The Consumer Duty also requires firms to do what they reasonably can to help customers make the right decisions.
That may mean sending more communications at key points in the “customer lifecycle”.
James said: “For example, instead of just getting a letter a month before your car insurance renewal, you may start to get a follow-up email and text message – to help remind you that you need to act.”
This will also include increasing communications for customers buying a product online.
James said: “In the past financial companies have worked hard to make the buying process as frictionless as possible, which has meant ‘rushing’ over some topics – and failing to explain some of the limitations and pitfalls.
“Consumer Duty will see a reverse of this process.”
That means when you’re signing up to a new bank account, or buying insurance, it should be much clearer what exactly you are signing up for.
2. Fairer terms
Under the new Consumer Duty, firms must ensure that the amount that a customer pays for a product or service is “reasonable” when compared to the benefits the product or service offers.
James said: “There’s no simple economic model to do this assessment.
“It requires a comprehensive assessment of product features and an accurate assessment of price versus the market.”
It’s unclear just yet what this will mean for customers who borrow money through unsecured loans and credit cards.
There’s hope that it will help ensure that more borrowers are lent money that they can pay back at an affordable and “fair” rate.
But it’s up to individual providers to set their own policies and practices to ensure that customers get a fair offer.
The new rules could quash previous scandals like the mis-selling of payment protection insurance and unaffordable payday lending.
3. Fewer hidden costs
James said that the Consumer Duty will also ask some challenging questions about established business models.
The FCA is clear that it expects firms not to rely on income generated by “poor customer outcomes”.
This usually references vulnerable individuals who fall into debt traps because they’re offered unaffordable interest rates.
Products such as 0% credit cards with no fee rely on earnings from those who miss payments, fail to pay off their balance or do not transfer away before the end of the offer period.
Standard APRs on credit cards after a 0% introductory period average 25.5% but can reach as high as 39.9%, while missed payment fees are an extra £12.
An enticing offer like a 0% card can draw in, and effectively incentivise spending among both financial sound consumers as well as those who are more vulnerable.
He said: “Sadly, it’s likely to be the latter who will end up with larger debts that cannot be paid off and carried on to higher interest rates.
“It’s likely some of these business models will now be under threat as evidencing the Consumer Duty principles of avoiding foreseeable harm and acting in good faith towards customers to ensure products are fit for purpose and consumers receive fair value, will be harder to justify.”
So the unintended consequence of these new rules could see the extinction of financial products like 0% interest credit cards.
The rules could also see the demise of pointless insurance add-ons that customers don’t actually need.
4. Stronger rights to complain when things go wrong
These added protections will give consumers a better footing if they were to complain against a bank, insurer or lender, according to James.
Parts of the Consumer Duty could be quoted directly with a provider if they fail to meet the rules set out by the FCA.
But as the Duty comes with higher expectations it could mean that fewer customers end up taking their complaints to the Financial Ombudsman.
Banks, lenders and insurers are required to have a written process that tells customers how to make a complaint.
You should be able to find the information on their website but if you don’t, ask them to send it to you.
It’s worth making your complaint as soon as possible, as it’ll be easier to remember all the relevant details to strengthen your case.
Then simply follow each stage of the process, and submit as much evidence as you can.
Once you’ve sent in your complaint, the firm needs to give you a response within eight weeks.
If you don’t get a response within eight weeks or are unhappy with the one you get, you can take your complaint to the free Financial Ombudsman Service.
To get in touch, you need to fill in a form, which you can find on the FOS website.
If you’d prefer to talk it through with someone, the FOS can help you do this if you call 0800 023 4567.
The FOS will then look at the evidence provided by both sides, and it may contact you for more information.
Once it’s made a decision, it’ll write to you and if it agrees with your complaint, it’ll say what your insurance firm must do to put things right.
If all else fails and you still think you’re entitled to compensation you can try taking your insurer to the small claims court – but this comes with a substantial cost.
