The Consumer Duty came into force one year ago, and from 31 July 2024, its scope is widened to effectively cover all financial products offered to consumers.
Retailers offering credit arrangements to their customers through providers (for example, V12 Retail Finance or Klarna) may be subject to the Consumer Duty. Many have put in place the right measures to meet the Consumer Duty's requirements, but a substantial number have yet to do so.
Need to know more about the Consumer Duty? Please read on.
Why should we care?
The Consumer Duty applies to all those who offer financial products to consumers, including banks, insurers, financial advisers, and credit brokers. It is the latter that is key to the retail sector.
If you arrange or give a credit option to your consumer customers, the Consumer Duty will apply if you:
- act as a credit broker arranging regulated credit agreements between lenders and your customers
- refer your customers to lenders; or
- play a material role in influencing your customers' choice of credit product, service, and/or customer outcomes.
Remember, arranging credit may include:
- contributing features to the credit product;
- overseeing financial promotions and customer communications relating to credit;
- dealing with the lender to assess affordability/suitability; or
- handling customer queries/complaints.
You may need FCA (Financial Conduct Authority) authorisation to act as a credit broker unless you can rely on an exemption. Please take advice about exemptions as this is a complex area of law.
What should we do if we are retailer / credit broker subject to the Consumer Duty?
You should look to provide good outcomes for your customers in four key areas.
- Products and services
- Are the credit arrangements appropriate for the needs, characteristics and goals of your target customers?
- Have you considered any potential conflicts of interest arising from you or your staff's payment and your role in credit arrangements?
- Price and value
- Do you offer access to financial products and services that provide fair value with a reasonable relationship between what your customers pay and the benefit they receive?
- Are you clear with your customers as to the fees you receive for arranging credit for them?
- Do you make your customers aware of their refund rights under section 155, Consumer Credit Act 1974.
- Customer understanding
- Do you provide your customers with prominent, sufficient and prompt information about the credit broking services provided through you?
- If you make recommendations relating to credit arrangements, do you carefully consider your customers' needs and circumstances?
- Do you make clear to your customers that credit is not available in all circumstances and is subject to financial status?
- Customer Support
- Have you set up the right training for you staff?
- Do you and your staff recognise your customers may be vulnerable?
- Do you have a clear complaints procedure?
Vulnerable Customers
Customer vulnerability is a key FCA concern. The Consumer Duty requires fair treatment of vulnerable customers in all aspects of credit relationships. This is especially relevant if you are a retailer acting as a credit broker as your customers may be in financial trouble or difficult circumstances.
You are recommended to place a special focus on vulnerable customers, encouraging them to contact lenders for support with loan repayments and helping them understand the money help or guidance available to them. The FCA has issued guidance as to how you can create a culture enabling the fair treatment of vulnerable customers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.