Consumer Duty unintended consequences: Good intentions, chaotic execution?


Is the sector being unfairly targeted by an overzealous regulator, or is it just being dragged – kicking and screaming – to a place where the public can be assured that they will get transparency, appropriate products, and high-quality advice, i.e., “good outcomes” as defined by the FCA’s Consumer Duty?

The FCA appears to be in overdrive since the Consumer Duty came into effect on 31 July 2023. We’ve seen a record number of “Dear CEO letters” outlining concerns with industry practices and models. The regulator has taken a broad approach, tackling issues like excessive spreads between savings and lending rates, questionable GAP insurance value, low and slow payouts in car insurance, and, most recently, a review of discretionary commission practices that has a whiff of PPI about it. Allegedly, travel insurance may well be next in the crosshairs.

On the whole, I think these early actions have landed well. They have been met with low levels of dissent or disagreement from the sectors concerned – with the obvious exception of retail car finance, of course. Still, I guess the regulator needed to show us they were serious. It would seem the FCA has no shortage of products and markets that would, in their opinion, fail to deliver good outcomes for the British public. And we haven’t even mentioned ‘customers in vulnerable circumstances’.

A good outcome for a consumer doesn’t – and shouldn’t – have to mean a bad or unprofitable outcome for the supplier.

The regulator highlights a concerning statistic: at any given time, roughly half the population could be considered vulnerable. Furthermore, they emphasise that vulnerability is not a fixed state; throughout our lives, we can all expect to experience periods of vulnerability due to various factors. A surprising takeaway from our record-breaking March 2024 webinar on vulnerability – (watch it here) – was the widespread audience confusion about the topic.

For example, whilst the current King of England certainly presents as vulnerable, it would be fair to conclude he does not warrant any special treatment. This differentiation between assessment of vulnerability and resulting need for action appears to be widely misunderstood. As a result, some firms have concluded that they were potentially measuring the wrong thing. The requirement is to establish and record vulnerability and then to determine if special treatment is appropriate – not just to record where special treatment has been extended.

Several sectors have proactively embraced Consumer Duty, recognising it as a long-term commitment, not a barrier to profitability. They have acknowledged that change is required and are embracing cultural transformation. They know that the public wants excellent levels of customer service, and they aren’t prepared to be ‘fobbed off’ with low-quality, ineffective technology in the place of a competent employee. So, they are dumping “digital-first” in favour of digital-on-demand and investing in ensuring their employees are genuinely competent in-role and supported appropriately to do their jobs.

Others, I would suggest, are digging their heels in and whining. On a number of recent webinars, we have received comments in the online Q&A asking why the regulator couldn’t just give firms a template to fill in. Dare I say a box to tick?! Clearly the fundamental premise of Consumer Duty hasn’t landed with these folks.

One individual raised a concern about how their frictionless online lending product could comply with regulations related to vulnerability and current, as well as future, stricter consumer affordability requirements. Perhaps the Product & Service outcome under Consumer Duty would provide the answer?

The basic tenant of Consumer Duty is hard to argue with. Yet I hear and see many firms doing just that due to inconvenience or expense. But I also see the unintended consequences. Could an overly zealous regulator, potentially influenced by the current election year, create an unsustainable situation? Firms might struggle, consumers could face higher costs due to market disruption, and new entrants might benefit from the chaos.

Take the retail car finance market, for example. For certain a sector that has historically been slow to change, one that is not necessarily associated with “regulatory best practice” and perhaps one that has low consumer confidence and trust. Whilst some firms have openly and fully embraced the Consumer Duty, it would be fair to say that a good proportion haven’t. When the FCA announced it was intervening in the UK retail motor finance market on 11 January 2024 – and Martin Lewis jumped on the bandwagon – it effectively signalled a free-for-all for Claims Management Companies (CMCs) and every consumer who fancied chancing their arm.

Firms have received tens of thousands of complaints and continue to do so – even those firms who made it very clear that they never participated in discretional commission arrangements. Cases are escalated to the Financial Ombudsman Service (FOS), where the firm is immediately charged a processing fee, even though the apparent uphold rate is less than 5%. Calls from the sector to charge CMCs for submitting what are pretty obvious, unqualifying and (often) spurious complaints, appear to have fallen on deaf ears. The FOS, it would seem, lack a clear structure for accountability, which may raise concerns about its effectiveness.

Consider one of the many complexities of this market, which makes this review – in my opinion – unfair and unhelpful. Often interest rates were inflated to contribute to the value of a trade-in vehicle. Yes, the customer paid an inherent rate higher than their credit status deserved, but then overall they were able to afford the car they wanted and holistically got a good outcome. There are many nuances to these sorts of deals that are commonplace in some areas of the car finance sector. The specific details of these transactions were unlikely to be recorded and thus the ability for a firm to defend a claim in these circumstances is low.

How does the action taken by the FCA sit with the Consumer Duty? It clearly does not and – unintended or otherwise – serves to disadvantage the public! As the regulator, perhaps unintentionally, creates chaos in a market valued at £52bn per annum, firms will undoubtedly fail, others will consolidate, and some will withdraw from the market entirely. Competition will be reduced, and the enormous costs of this action will be passed on to the British public, as they ultimately have the only cheque book in the equation, further increasing the cost of motoring to an already embattled motoring public.

The intent of Consumer Duty is valid but, like most things in life, good intentions often fall well short of the intended outcome. For Consumer Duty to work, the regulator needs to garner the ongoing support of the financial services market. Fighting 50,000+ firms feels like an impossible task where the unintended consequence is a reduction in competition / choice and higher costs for the consumer. Equally, firms need to comply with both the spirit and letter of the regulation and not simply tick boxes.

Clumsy, ill-thought-out interventions like that of the retail car finance market only serve to disenfranchise the sector and undermine the great intent of Consumer Duty. I would like to think that common sense will prevail, and the regulator will use its powers to hold those firms to account who, either through incompetence or deliberate action, cause consumers to suffer financial detriment. And that they commit to resisting populist actions that, while generating headlines, will ultimately erode the credibility of the entire market and the regulator’s role.

In turn, firms will embrace the spirit of Consumer Duty. And, in a timely fashion (not overnight – it simply isn’t possible!) transform their businesses, products, advice and service levels so that consumers in the UK get great outcomes from every interaction with every firm in the sector. A good outcome for a consumer doesn’t – and shouldn’t – have to mean a bad or unprofitable outcome for the supplier.


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Adrian Harvey is CEO at Elephants Don't Forget. Elephants Don’t Forget are world leaders in the use of Artificial Intelligence to augment how each employee learns, retains and evidences in-role knowledge and competency. We support employee competency and compliance training of some the world’s most recognised brands including Microsoft, Vodafone, Experian, Allianz, Old Mutual, Aviva, Eon and Volvo.

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