What does consumer duty mean for you?

With just weeks to go until consumer duty comes into effect, we take a look at the changes and what it’ll means for you as a customer.

On 31 July, the Financial Conduct Authority (FCA), the UK regular for financial service firms, will introduce its consumer duty regulations, setting higher standards for firms towards customers who buy or use financial products and services.

What is consumer duty?

Consumer duty means putting customers in the position where they can make an informed decision after they have been presented with suitable products that meet their individual needs.

It also means they will receive fair value for the products or services they buy. And it will require all financial business, whether designing, selling, or advising to put customer needs at the heart of their business.

The FCA wants people to be able to buy insurance, take out mortgages, borrow credit sensibly, and invest in their future or seek debt advice confident that financial businesses have provided them with the right products for their needs.

Financial businesses who deal with customers will have to become more data driven to be able to meet the new requirements, as they will also be responsible for monitoring customer outcomes to prevent consumer harm occurring and ensure that each customer has received a ‘good outcome’.

They will need to identify at an early stage occasions where they have not provided good outcomes and proactively take action.

Most importantly, consumer duty requires firms to consider the needs of all of its customer types and in particular vulnerable customers or those who require more support.

Why is this important?

The importance of using more data will mean that financial business can no longer rely on broad averages.

This means certain types of customers, such as vulnerable ones or those on low incomes, will no longer be hidden amongst the average, removing the danger of them being sold products that could lead to additional charges and financial penalties, such as late payment fees.

The FCA has also made it clear to some lenders that under the consumer duty they should not be charging unreasonably high fees or interest rates to those in debt or with a poor credit history.

Using the data they have available, they should be able to spot struggling customers and should step in at the first warning sign.

The bottom line

Ultimately, consumer duty means selling suitable financial products and services at a fair price, providing good standards of customer service and communication that people understand.

It’ll help customers buy with confidence and help instil more trust in the financial services sector.