The government’s new Consumer Duty will protect borrowers with a number of measures that ensure all lenders act in good faith and in their customers’ best interests. In our latest column for Farmers Weekly, our CEO Matthew Smart welcomes this move – but points out that responsible lenders are already there.
Farmers, like everyone else, are feeling the squeeze.
High inflation and spiralling interest rates are now making a difficult last few years even more challenging – and forcing many farmers to review and reorder their finances in order to protect their businesses and safeguard their futures.
Reviewing the array of different financial products, costs and suitability are essential parts of this process.
To help and support this safeguarding of retail customers through the whole journey of the finance process, and to give borrowers wider and more informed choices before they commit, is the government’s new Consumer Duty.
This is a new standard from the Financial Conduct Authority which sets higher and clearer standards of consumer protection across financial services and actively requires banks and finance companies to put their customers first.
The new Consumer Duty regime affecting all UK lenders with retail customers, which came into force on 31st July, will eventually supersede the 1974 Consumer Credit Act which, at nearly 50 years old, is no longer really fit for purpose.
Its language is full of impenetrable legalese, it doesn’t regulate newer forms of lending such as Buy Now Pay Later and it doesn’t directly cover the digital technologies which now form part of everyday life when taking out credit.
We welcome new FCA protection for borrowers
Consumer Duty is a definite and, we believe, welcome shift to the side of the borrower.
The FCA’s new Principle 12 states “Firms must act to deliver good outcomes for retail customers”. It demands transparency and support, stipulating that lenders should:
- Take all reasonable steps to avoid causing foreseeable harm to customers.
- Take all reasonable steps to enable customers to pursue their financial objectives.
- Act in good faith.
Specifically, it means consumers should receive communications they can understand and products and services that meet their needs and offer fair value.
The new ruling makes lenders give clear information that enables borrowers to make a measured, informed decision without pressure, as well as support when they need it. And it obliges credit firms to focus on consumers’ real and diverse needs, including those in vulnerable circumstances, at every stage of the borrowing process and every time they speak to their lender.
All this is long overdue and excellent news for borrowers and will mean significant changes for many banks and financial institutions as they work to adapt to the new regulations.
Established lenders have to change their very culture to comply, while also introducing new standards and processes to report responsibility for their sales forces, broker introducers and dealer point-of-sale finance.
There is particular focus on intermediary Commission Disclosure and so called “Closed Conditional Selling practices” whereby dealerships and estate agents effectively strongarm customers into using in-house financing products as a condition of the product purchase by an employee or agent working within that sales outlet.
This morally questionable practice prevents the customer from shopping around and comparing different products, rates and terms for financing the purchase, and raises serious ethical and consumer rights concerns for many. Addressing these practices and the rules which allow them to happen is long overdue.
The better news is that some more agile independent lenders are already there being customer-centric in their culture and already have customer-first service at their core and are already committed to a transparent, fair, positive outcome for all their customers.
The new regulations and reporting will confirm to such lenders they have always prioritised customer service and positive borrower outcomes and little change in culture is therefore required.
Those who are already communicating clearly, honestly and transparently, giving their customers support to make their own informed choices without pressure, don’t need to change much to make their clients’ whole customer journey even better.