The new 'Consumer Duty'

From September, the FCA starts supervisory work assessing the impact of the new finance rules implemented in January; they will do so against the backdrop of their proposal for a new Consumer Duty. Due to come into force in July 2022, it will set higher levels of consumer protection in retail financial markets with a clear focus on culture.

The scope of the FCA’s September assessment includes;

• Looking closely at any attempt by a motor finance firm to introduce a commission model that could lead to the same harm that they sought to ban.
• Monitoring how well firms are complying with the ban on discretionary commission; this will include looking at what commission models firms use as an alternative to discretionary commission arrangements and the ranges of interest rates and commission earnings.
• Undertaking point-of-sale mystery shop exercise to measure lenders’ control over dealer networks to ensure dealers/brokers comply with relevant regulatory requirements.

Inherent in the scope is the FCA’s published expectation that consumers would save £165m annually in credit costs. A recent trade publication article saw an unnamed dealer group boss express concern that if the FCA doesn’t think the measures have worked, the industry will face full disclosure during the sales process. We can only wait and see if this occurs. Our MotoRate finance pricing model, technology and oversight work with dealers leaves me confident but not complacent.

And then there is culture. The FCA has been clear, even without the planned Consumer Duty, its Principles already cover the critical importance of culture. However, in their work, they; ‘encounter too many firms that are not adequately considering the needs of their customers and prioritising good consumer outcomes as an objective of their business activities.’

It’s time to ‘double down’ to ensure compliant pricing, processes, controls and culture are all in place.

Jon Slater, Chief Strategy & Marketing Officer