Six months since the introduction of the FCA’s Consumer Duty (31st January 2024), James Daley, managing director of consumer group and ratings provider, Fairer Finance, reflects on the impact so far and what we can expect in the months and years ahead.
He said: “Consumer Duty was heralded as a step change in regulation – and a significant raising of the bar in terms of financial services conduct. Although it started slowly, we are seeing growing evidence of its impact across all financial services sectors.”
Some positive Consumer Duty examples identified by Fairer Finance include:
· First Direct and Santander have axed their charges for using debit cards overseas to improve their case that they offer fair value
· St James’ Place has removed its exit fees
· Average maximum APRs for credit-builder credit cards have fallen from 44.7% to 41.3%
· Virgin Money has added a new line into its savings Ts&Cs committing to letting customers know at least once a year if there are accounts where they could get a better interest rate
· Lloyds Bank has removed its fee for customers who order duplicate statements
· Many investment platforms have increased the interest rates for those who have cash balances in their accounts
· A number of firms have invested in SMS text messaging systems so they can provide more timely updates to customers at key moments like product renewal, or deal end
· Many banks and insurers have begun to better disclose the downsides and risks of their products
· Many firms have rewritten letters and emails in simpler language
· Monzo and Animal Friends have launched audio versions of their terms and conditions.
Daley continued: “The most noticeable changes are in response to the fair value and customer understanding elements of the Duty. Firms have been forced to look at their pricing and ask whether they can justify their rates, fees and charges – and in many cases, the answer has been no.
“There’s also been a lot of work going into simplifying communications – as well as thinking about how best to get the message through to customers at key moments in the customer’s journey. We’ve starting to see more websites engage in a radical transparency – admitting the shortcomings of their products as prominently as the benefits. And we know that many firms are still hard at work rewriting complex Ts&Cs and policy wordings so that their customers can understand them.
“But, not all firms are doing anything like as much – gambling that Consumer Duty is a flash in the pan that won’t amount to much. This is a risky strategy as the FCA has already shown that it intends to deep-dive into how firms are doing on a sector-by-sector basis – following up with Dear CEO letters where it finds shortcomings. It will be a brave CEO who shrugs their shoulders and ignores these prompts. Already over the last couple of months, we’ve seen wake-up calls for savings firms, investment platforms and GAP insurance providers. And I think there will be much more to come in 2024.”
Some areas that Fairer Finance predicts will be a focus in 2024 include:
· Focus on premium finance – The FCA has this month announced it will take action on the high cost of paying for insurance in instalments (particularly in the car insurance market). This is increasingly seen as a tax on the poor – especially as many other insurance sectors (like pet and travel) don’t charge anything to pay in instalments. If the sector does not come up with some solutions, motor insurers may soon find that they are banned from forcing customers to pay their annual premium upfront. This will remove the need for customers to borrow and pay interest if they need to pay monthly.
· Credit cards are in the spotlight – Many existing credit card business models rely on bad customer outcomes for their profitability – and it won’t be long before the regulator weighs in. Credit cards do far too many things, are far too complex, and are far too expensive. While Bank of England rates fell between 2008 and 2016, credit card APRs rose. Then, when rates hit the floor, the largest lenders pegged their interest rates to base rate – meaning that APRs are now higher still. There is doubt over whether credit card firms can prove that they offer fair value to all their customers.
· Poor quality insurance will be called out by the regulator – At the start of the autumn, the FCA called out the GAP insurance market for offering poor value to its customers – and demanded that it pull its socks up. Motor excess protection, personal accident cover, and home emergency cover could next be in the spotlight.
· Terms and conditions will get clearer and easier to understand – The Consumer Duty has raised the bar in terms of how firms must communicate with their customers. Across 2024, we will start to see new, clearer documents published. Not everyone is stepping up to get to grips with this work – but the pressure will start to rise on the laggards as they spot their competitors upping their game.
Daley concluded: “Quite apart from the regulatory risk, the other danger of firms standing still is that eventually, it will put firms at a competitive disadvantage. As customers begin to receive a higher standard of transparency and customer support, they will learn to expect it. It’s too early to see the results on levels of trust and satisfaction in our polling yet – but I would expect we will start to see the impact over the course of 2024 as more and more firms complete their initial workstreams.”
