The FCA Consumer Duty
The biggest regulatory development in 2023 for many will be the new FCA 'Consumer Duty'.
The Consumer Duty replaces and brings in higher standards than the previous applicable regime – treating customers fairly (principle six), and clear, fair and not misleading communications (principle seven). This forms part of the FCAs transformation into a more assertive and data-led regulator. The FCA is keen to stress that in the current economic climate it is more important than ever that consumers are able to make good financial decisions!
This applies (among others) to financial brokers and so in practice includes motor dealers – and comes into force on 31 July (for all new and existing products and services).
New Principle 12 is at the heart of the duty: a firm must act to deliver good outcomes for retail customers and must:
- act in good faith towards them;
- avoid foreseeable harm to them; and
- enable and support them to pursue their financial objectives.
Four outcomes support principle 12 and the associated "Cross-Cutting Rules":
1.Governance of products and services;
2.Price and value;
3.Consumer understanding; and
4.Consumer support.
The FCA makes clear that its rules will require dealers to consider the needs, characteristics and objectives of their customers, including those with characteristics of vulnerability and how they behave, at every step of the journey.
Whilst the FCA is not currently introducing a (much mooted) private right of action by customers for breaches of the new Consumer Duty, it has left open a possible future introduction of it. Of course, in any event, customers will be able to bring a FOS (Financial Ombudsman Service) complaint, as well as the new regime providing the FCA itself with a clearer route to enforcing these higher standards against motor dealers.
Dealers will need to take necessary actions, including making an appropriate plan and do what it says.
Motor dealer market commentators have warned that this is likely to eat into a lot of management time, given how it touches so many parts of the business – so preparing well and in good time is essential!
If Birketts can help then please contact Greg Allan in Birkett's Corporate Team.
Reform of the Consumer Credit Act 1974 – First step
Consultation on the article above has now launched on the proposed Reform of the Consumer Credit Act 1974. Motor dealers may be aware that the Treasury originally made clear its intention to move the majority of this longstanding consumer credit act into the Financial Conduct Authority (FCA) Rules. The Treasury is now adding that the aim is for it to follow more closely the approaches in other areas of financial services regulation. This of course makes complete sense, especially at a time when the FCA is bringing in its "Consumer Duty" as discussed earlier in this article.
The Government has five Principles to underpin this reform:
1. Proportionate
2. Aligned
3. Forward-looking
4. Deliverable
5. Simplified
Whilst again this all sounds sensible, don't expect it to come through any time soon – the Government expects the reform to take a number of years! We will continue to watch with interest how it unfolds for motor finance etc.
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.