New fairer financial rules kick in from today – what do they mean for you?
New ‘Consumer Duty’ regulations overseen by financial watchdog take effect from today. But what do they mean for customers?
The rules are the Financial Conduct Authority’s (FCA) response to what it sees as too many customers being ripped off by financial firms. The rules will give consumers more protection in various scenarios and should give people more confidence when buying financial products or services.
The new duty applies to new and existing products and services that are open for sale or renewal from today. It will be introduced on 31 July next year for ‘closed’ products or services.
Customers’ needs to be put first
Depending on how the rules are enforced, we could see an overhaul of certain retail banking products and greater scrutiny of how fairly businesses treat their customers.
Andrew Michael, personal finance expert at Forbes Advisor, said: “At its heart, the new regime is about financial companies putting the needs of customers first. It means consumers should receive communications they can understand, products and services that offer fair value while meeting their needs, and that customer support is available when required.
“Implemented effectively, it should mean that consumers can have the same confidence in buying their financial products as they do when making other purchases for their homes.
“This includes receiving proactive engagement from their mortgage provider, bank, or insurer on the products they have taken out and whether they would be better off switching to other products.”
What does the Consumer Duty mean for consumers?
The new regulations impact how financial firms can treat customers. You might not have heard much about it so far, but there has been a great deal going on in the financial services industry behind the scenes.
The Consumer Duty puts the onus on financial firms to sell people products they understand, end hidden fees and charges, and make complaints processes easier to navigate.
The FCA has flagged up certain expectations of firms – for example, around removing what the regulator terms ‘sludge practices’, such as the ability to buy a product easily, only to experience much more difficulty when trying to exit from it.
Firms should also be able to explain and justify their pricing decisions, including being able to show that rates and premiums offer fair value.
They will also be expected to take proactive steps to ensure that if there is a risk of consumer harm, it is identified and any remediation is calculated and paid without waiting for customer complaints.
Rocio Concha, Which? director of policy and advocacy, said: “Whether you have a bank account, insurance policy, mortgage, credit card or want to take out a loan, the Consumer Duty is clear that firms should ensure that the product and service meets customers’ needs, offers fair value and that customers have enough information to make an informed choice and are supported throughout.
“The duty should have wide-ranging consequences. In practice, it should mean that the terms and conditions of insurance policies are easy to understand, that banks alert customers of better savings rates, and that lenders proactively help any mortgage customers in financial difficulty with tailored support.
“Which? expects the regulator to take tough enforcement action should firms fall below the required standards.”