End to rip off charges and easier to cancel products…but not yet
Better protections and clearer terms for customers are on the way as part of the City watchdog’s ‘Consumer Duty’, but the date it takes effect has been pushed back.
The Financial Conduct Authority’s Consumer Duty is set to “fundamentally improve” how firms serve customers.
At the heart of the new duty are higher and clearer standards across the financial services sector, with firms required to put customer needs first in these areas:
- Products and services
- Price and value
- Consumer understanding
- Consumer support
It said some firms currently present information in a way that is misleading or difficult to understand, which makes it harder for customers to make a timely and informed decision.
Meanwhile, some firms sell products or services to customers that are not right for them, or which don’t offer fair value or provide poor customer service and support.
Given the current cost-of-living crisis, the FCA said setting higher standards and putting consumers’ needs first is central to its strategy.
As part of the Duty, firms will be required to end rip-charges and fees, and make it as easy as possible for customers to switch or cancel products in the same way it was for them to take out the product in the first place.
The FCA also wants to stop people giving up when accessing customer support due to lengthy wait times, and for firms to provide timely and clear information about products and services so shoppers can make “good financial decisions”.
It said key information shouldn’t be buried in lengthy terms and conditions “that few have time to read”.
Further, firms should provide products and services that are right for customers, and they should focus on the “real and diverse needs of customers”, including those in vulnerable circumstances “at every stage and at each interaction”.
However, the implementation of the Consumer Duty has been delayed and will mean the rules come into force on 31 July 2023 for new and existing products or services that are open to sale or renewal.
As part of the regulator’s original consultation, it proposed an effective date of 30 April 2023 but “industry respondents felt strongly that this was highly challenging”.
For closed products or services, the rules come info force on 31 July 2024.
‘Little comfort to customers stuck in poor value products’
Tom Selby, head of retirement policy at AJ Bell, said: “The Consumer Duty is effectively a gauntlet laid at the feet of all UK financial services firms by the FCA.
“The regulator has been absolutely crystal clear that the new rules are intended as a step up in standards, with firms required to aim for ‘good outcomes’ for customers when designing products, setting prices, providing support and communicating.
“While firms offering products and services that are still for sale will be given 12 months to implement the requirements, so-called ‘closed-book’ firms no longer selling new products have been given until 2024 to comply.
“The FCA will likely receive some flak for this decision, especially given much of the worst detriment in terms of things like high charges and poor service often sit squarely with firms no longer actively trying to win new business.
“The regulator might argue closed-book providers need more time to update antiquated systems, but that will come as little comfort to customers stuck in poor value products and receiving unsatisfactory service.”
‘Put customers first’
Sheldon Mills, executive director of consumers and competition at the FCA, said: “The current economic climate means it’s more important than ever that consumers are able to make good financial decisions. The financial services industry needs to give people the support and information they need and put their customers first.
“The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards. As the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”