Six months after the FCA’s Consumer Duty launched, there are promising signs that it’s making finance fairer for vulnerable people
Poor old James Blunt. The singer recently spotted signed copies of his book for sale on the Waterstones website for £2 less than the unsigned version.
No one said stardom would be easy. And, as Blunt’s discovery shows, pricing isn’t always a simple business either.
Not to mention the confusion faced by eager Blunt book-buyers.
Price and value form one of four key outcomes in the groundbreaking new Consumer Duty, launched by the Financial Conduct Authority to protect customers from traps, pitfalls and bad practice in the financial services industry.
The Duty, which came into force six months ago at the end of July, raised the bar for consumer protection and obliges financial services companies to put the customer’s needs first.
Stipulations include an end to rip-off fees, clear information on products and services, and a focus on the customer – especially the most vulnerable ones.
Other areas to come under the FCA’s gaze will be the length of time customers are made to wait for support, and how easy it is for them to switch products if they change their mind.
It was trailed as the most sweeping change to UK financial regulation in a decade and companies had an initial period of a year to get their houses in order.
The Consumer What?
Sweeping it may be, but has the move cut through with vulnerable households – the kind of consumers who stand to gain most from the Duty?
Almost certainly not, says James Daley, journalist and founder of research and ratings agency Fairer Finance.
“I would expect that awareness of it is specifically zero,” he says. “But despite this, the Duty is already creating a lot of positive change in the industry.
“It will be useful for consumers to understand it because it will strengthen their case when they’re taking complaints against firms,” he says. “But it’s a regulation that’s there for the FCA to enforce and use to improve standards.”
Encouragingly, shortly before the launch of the Consumer Duty the FCA noted that it was pleased at the efforts of financial services firms to prepare for the new rules.
But in preparation for the launch, the FCA outlined more actions that firms could take to ensure they were compliant.
In a move that could be game-changing, especially for vulnerable consumers, these actions urged firms to ensure their products and services did not “risk harm”.
This focus on the customer’s financial interests could mean an end to the traps and pitfalls that can hammer an unwitting buyer.
Daley says this could even call into question the future of products like credit cards, whose profitability relies on consumers who – through lack of funds, understanding or both – make choices that cost them money.
“The credit card market has lots of different traps for customers to fall into,” he says. “Most of the profitability is made from customers who hold balances for long periods of time at high interest rates of 20 per cent plus.
“I think what we’re going to start to see is a debate around some of these business models, and perhaps a complete existential challenge to the way some of these sectors work.”
But already, a flurry of activity is under way as firms rush to get their documents translated into clear language or clarify their fee structure. Observers expect this to usher in a ratcheting up of standards in the sector.
Indeed, some prices have already started to fall as providers try to avoid falling foul of the new fair value rules.
“Having to justify their pricing and prove that they’re offering fair value has led to [firms] reducing their prices,” Daley adds. “We’ve seen interest rates on sub-prime credit cards come down a good notch over the last year, and that’s undoubtedly been a direct response to the Consumer Duty.”
Language matters
The Duty seeks to improve outcomes for consumers in four areas – products and services, price and value, consumer support and consumer understanding.
The last of these should finally spell the end of complex terms and conditions that leave most people scratching their heads, but signing anyway in good faith.
Plain English is an integral part of the Quids in! package – especially when it comes to sharing news and updates with readers of our magazine and news site.
Often the subject matter – topics like welfare benefits for example – is complicated. The language used in Quids in! articles has to be straightforward because the cost to readers of missing out on vital information could be devastatingly high.
Readers with lower levels of literacy, or those who speak English as a second language, shouldn’t miss out on crucial news just because the information isn’t presented in an accessible way.
By avoiding industry jargon and explaining things in a logical and methodical way, we can cut straight through to the details that readers need.
But it’s not just about checking the wording and the content. Daley says financial firms are also starting to move away from assumptions about how vulnerable customers receive information.
“We know a lot of people don’t read letters,” he says. “But if you know that then that means that it’s not enough to simply send letters. [Firms] need to think, ‘are we communicating by email, are we using text messages? When people log on to their online banking are we providing them with notifications that might help them make their decisions?’
“We’re certainly seeing changes and an improvement in customer journeys. There are now credit cards that are much more upfront about the fact that if you miss a payment you might lose your offer period.”
Other banks, he says, have increased the font size on their website for ease of reading.
The moves are encouraging, and should be benefitting consumers whether they realise it or not.
Ultimately, the Consumer Duty may take years to cut through enough to empower people to stand up to poor practice.
(And, sadly for James Blunt, the FCA as yet has no jurisdiction over the book trade.)
But in the meantime, improved communication and fairness from firms should begin to improve the customer experience.
And eventually, it will put a stop to the expensive and unjust outcomes that can be painful for any of us, and devastating for the most vulnerable.
Image: Mikhail Nilov / Pexels
