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New ‘consumer duty’ rules introduced by the Financial Conduct Authority (FCA) aim to set clear standards for the protection of financial consumers. Banks, building societies, investment and insurance firms, as well as many other types of business, are being told to “put their customers’ needs first”.
The timing couldn’t be better. Amid a
cost of living crisis, the UK regulator’s new rules should hopefully address
the increasing recognition by consumer groups that people cannot always solve
the financial problems they face. Consumers are under pressure and need more
support. Yet, trust in financial services is low: the FCA recently found that
just 36% of UK adults see most financial providers as honest and transparent in
how they treat customers.
The new rules cover not only direct
customers of products such as bank accounts, credit cards and loans, but also
anyone that ultimately makes use of a product or service, including family
members of a borrower who may benefit from the loan. Even if the provider does
not have a direct relationship with the user, the rules still apply.
In future, companies will have to
demonstrate to the regulator that they are proactively putting consumer needs
first and preventing any harm. They will be expected to continuously review
their operations to identify and resolve areas where they could be going
against these needs - from product design and delivery to customer services and
communications.
The new regime should lead to a
step-change in how consumers are treated. And this may improve financial
wellbeing in the UK, especially for those in vulnerable financial situations.
The FCA has suggested financial service organisations will need to make
fundamental cultural changes to be more aware of and responsive to consumer needs
across their operations.
A major part of this responsiveness
will involve listening to and understanding the real-life experiences of
financial consumers. Research shows the ways in which financial service
companies could improve how they deal with their consumers.
Preventing problems from escalating
Our recent evidence review on the
connections between financial and mental health challenges highlights the
negative effects of being behind on payments or in debt. An overly punitive
approach to dealing with these situations, such as the use of debt collection
agencies, exacerbates financial stress. It also reinforces the stigma people
can experience when dealing with both financial and mental health challenges.
An ongoing project by Aston University
and Birmingham City Council explores gambling and housing security. It shows
problem gamblers often turn to debt, including payday loans, to fund their
betting activity. This limits their ability to pay rent and can result in
tenancy loss, which negatively affects long-term wellbeing.
The stigma associated with problem
gambling has encouraged most of those surveyed to try to control their habit or
stop gambling altogether. But they had not received any support from their
financial providers or from other agencies they were engaged with, such as
their housing association.
Preventing negative escalations should
be a priority when consumers in tough financial situations are unable to pay
their bills and debt starts to mount. They also need appropriate support to
help overcome the stigma of experiencing financial problems.
The Government’s Breathing Space scheme gives people experiencing debt problems time to receive advice and find
a solution without penalties. This is a positive step. Similar interventions could
help relieve the financial stress of other experiences - for example, after a
bereavement, when the burden of dealing with complicated financial matters can
have a detrimental impact on relatives’ wellbeing.
Listening to feedback
Another strand of our research
highlights the need to examine the impact of financial stress and debt across
different groups of consumers. Disparities in income and wealth between men and
women, for example, relate to different work and employment experiences and
opportunities.
Financial products such as pensions
and investment accounts often appear to be gender neutral, but do not actually
align with different life experiences. A woman working part-time due to caring
responsibilities may struggle to save in a traditional pension, for example.
This can ultimately discourage women from using these products.
This is one of the reasons why it is
important for consumers to give feedback directly to the firms they deal with,
so they can create different products. The FCA’s consumer duty aims to
encourage this interaction. Again, this is crucial because 7.4 million UK
adults have struggled to contact their financial providers in the last year.
The consumer duty rules should help to
facilitate this kind of feedback, resulting in financial products with a more
diverse appeal and better outcomes. Support for those experiencing repayment
problems and dealing with stress about their finances should also be more
accessible.
In time, if followed correctly, these new standards should lead to a more equitable and trustworthy financial system. If so, this will improve financial wellbeing by reducing undue stress for many people.
Hayley Louise James
Senior research fellow, Aston
University
This article is republished from The Conversation under a Creative Commons license
Click here for more information about the Breathing Space scheme which can help you if you are in debt. You can also get help and advice from Citizens Advice or from StepChange and various other charities.
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