At the end of July 2022, the Financial Conduct Authority (FCA) will publish its new rules and guidance on Consumer Duty.
As mentioned in a previous legal update, the reasons for Consumer Duty are because the FCA is concerned that current financial services do not always work well for consumers and, in some instances, harm has been caused where consumers have been mis-sold to and firms were not providing suitable customer support.
With the current economic climate and the rising cost of living, the FCA is concerned this will mean increased interest rates and a higher demand for credit. Therefore, it is vitally important that firms are aware of the consumers’ higher risks of harm.
The FCA has sent out a “Dear CEO letter” to their mainstream consumer credit lenders outlining their approach to supervision. This means the main lenders, used by you to provide car finance for your customers, will be fully aware of the FCA’s expectations.
You may be thinking: “This has nothing to do with me.” And, yes, the onus is on the large lenders. However, the FCA’s role is to ensure all firms offering finance should also be following these rules and guidance and be aware of the potential risks of harm to consumers.
An interesting part of the CEO’s letter was the section relating to Consumer Duty entitled “Raising Standards”. This applies to all firms, from the sole trader to the largest dealer groups, especially in the current economic climate, where we all need to provide a higher standard of care to consumers.
The FCA stated: “Amongst other things, it would require firms to focus on supporting their customers to make good financial decisions (including those in vulnerable circumstances) and avoiding foreseeable harm and checking whether their customers are getting good outcomes. This includes providing information consumers can understand, products and services that are fit for purpose and offer fair value and helpful customer service. A firm would, for example, not be acting in accordance with the Consumer Duty where it seeks to exploit customers lack of knowledge, understanding or behavioural biases.
Exploitation and misleading information are counterproductive and detrimental to a healthy financial services system and are the types of poor practices the Consumer Duty seeks to prevent.”
Although the above relates to financial markets, we see this as being appropriate in all areas of consumer dealings, not just when you start to discuss finance options. From the start of the selling process, the advertisement, the preparation of vehicles, conducting a pre-delivery inspection, and providing a warranty product to your customers that is easy for them to understand.
If you need any further information on anything FCA related, or any information about our online stationery forms and warranty management system, please get in touch.
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