The organised among us will be thinking about starting our Christmas shopping in the coming weeks - and some of that could go on a credit card. As well as the festive seasonal change, you're also likely to start seeing changes in how your bank, credit card company, mortgage provider or motor finance provider interact with you.
These changes should be designed with you at heart. They'll stem from the Consumer Duty which sets a higher standard of care. Firms not only have to treat customers (as well as their potential customers) fairly, they have to put them first.
The Consumer Duty is intended to bring about major cultural change. Firms are working hard to get ready for requirements that take effect on 31 July 2023. They are encouraged by the Financial Conduct Authority (FCA) to make changes sooner rather than later so that consumers can start benefitting now.
Firms must act to deliver good outcomes for retail customers. You may wonder what a "good outcome" looks like.
If your car breaks down and you tell your bank you want to increase your overdraft to pay for the repairs, are you given the option to consider whether an increased overdraft is the most appropriate form of finance? If you compare overdraft interest rates and charges against those offered on a credit card or 12-month loan, the overdraft might be right. If your car cannot be fixed and you need to buy a new one, it is most likely that a longer-term loan or hire purchase is less costly overall.
Under the new rules, banks (and other finance companies) must highlight different options that could be better for you at the most appropriate point in the process. If you're told of another option right before you click 'apply', it's likely to feel like a box ticking exercise, as it was in reality too late in the process for you to get a good outcome.
The package of measures brought in by Consumer Duty is designed so that firms act in good faith towards consumers to avoid foreseeable harm, enabling and supporting them in pursuing their financial objectives.
At this very moment, companies are putting themselves in the place of the consumer to understand their regular experiences with them. They'll be going through journeys with different customer personas trying to figure out if where they can make improvements. If you're a student applying for an overdraft, how and when are you given information? Is it weaved in at the most appropriate point or do you get dumped with long Terms and Conditions at the end?
Consumer Duty isn't just about the start or end of the relationship, it is about the whole life cycle. If you have a credit card, you work 12 hour shifts on rotation and your credit card is stolen but the only way to report it is over the phone 09:00 - 16:00, then this could be detrimental to you.
Further changes covered by the new rules are impacted by assessments of behavioural bias. For example, does the colour and placement of an "apply now" button on a website impact customer behaviour? If so, companies may need to redesign their online experiences to ensure customers are not clicking to apply without having first received information necessary to make an informed choice such as a clear explanation of costs and charges.
In the past firms may have said "we don't get complaints on this, it's not an issue" but that won’t be good enough under the new rules. They will need to continually review customer journeys and monitor customer outcomes. The FCA will be proactively contacting firms to request data to check how they are meeting Consumer Duty.
In February 2020, just 35% of adults in the UK agreed that financial firms are honest and transparent. Hopefully all the hard work being done on Consumer Duty will improve this statistic.
This article was published in the Scotsman
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