What does the new consumer duty mean for you?

A new duty for UK banks and other financial businesses “to deliver good outcomes for retail customers” came into force on 31 July 2023. What does this mean for you?

The Financial Conduct Authority’s (FCA) “consumer duty” is supported by new legal rules and extensive guidance that will give customers additional rights and remedies when things go wrong with their financial services.

The consumer duty will extend to financial products that most of us rely upon throughout our lives: bank accounts, consumer credit, mortgages, insurance policies, payment services or e-money providers and investment advice for consumers.

Customers will be entitled to receive letters, e-mails and documents that they can understand; purchase products and services that meet their needs and offer fair value; and access customer support when they need it. 

In practice, the consumer duty will be regulated and enforced by the FCA, however, customers will be able to use the new rules themselves where they are unhappy with a service and use their provider’s complaints procedure or ultimately pursue a formal complaint to the Financial Ombudsman Service (FOS).

Likely areas for challenge will include rip-off fees and charges that come with financial products. For example, while exit or early termination fees for ending a contract early will not be banned, such fees must be fair and proportionate.

If charges are excessive and designed to dissuade customers from moving onto better products more suitable for their current financial circumstances they are likely to fall foul of the new consumer duty.

Likewise, where firms make it difficult to switch or cancel products – in contrast to how easy it was to take them out in the first place – such contractual hurdles will have to be revised and removed.

It will be interesting to see how financial companies comply with the duty to provide timely and clear information that people can understand rather than burying key information in lengthy terms and conditions that few have the time to read.

Many terms and conditions for bank accounts, credit or insurance contain excessive small print and jargon that runs into tens of thousands of words.

Other areas that will need to be changed will be the practice of making it impossible for customers to contact firms – requiring you to jump through several hoops while waiting endlessly on the telephone will no longer be acceptable.

Businesses will have to design products and services that are right for their customers, including those in vulnerable circumstances.

The FCA has already given firms a year to implement the new rules for all new and existing products and services that are currently on sale. The rules will be extended to closed book products from July 2024, to give sufficient time to bring older products no longer on sale up to the new standards. 

It’s hoped the consumer duty will help people avoid being the victim of financial fraud and scams. Many banking fraud cases in the UK take place through “authorised push payment” fraud (APP). UK Finance advise there were 207,372 incidents of APP fraud in 2022 with losses of £485.2 million.

APP fraud is where consumers are scammed into transferring money from their account to another person’s account and authorise the fraud by consenting to the payment – such as via their mobile banking app or online banking website.

For APP fraud it’s important to appreciate that contract and common law doesn’t provide easy solutions for consumers. Last month, the UK Supreme Court held that a bank was not liable where its retail customer instructed it to make a payment to a fraudster: Philipp v Barclays Bank UK plc [2023] UKSC 25.

One of the core rules that forms part of the consumer duty is the cross-cutting rule that “a firm must avoid causing foreseeable harm to retail customers”

FCA guidance says an example of foreseeable harm includes: “consumers becoming victims to scams relating to their financial products for example, due to a firm’s inadequate systems to detect/prevent scams or inadequate processes to design, test, tailor and monitor the effectiveness of scam warning messages presented to customers”.

Banks will have to provide adequate warnings to their customers about the threat of APP scams; it may well be that FOS redress in the future will turn upon the sufficiency and effectiveness of those warning systems, particularly in relation to vulnerable consumers.

If you believe you’ve made a banking payment to a fraudster contact your bank immediately and let them know. Ask if they can recall the payment. If they cannot or will not refund you, consider your scope to complain to your bank and ultimately the FOS where appropriate.

You may be able to obtain free advice from a local law centre or advice agency.

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