There aren’t too many people that get excited by new rules and regulation. But when they provide helpful protections and raise standards for consumers they are so very important. Cue the Financial Conduct Authority’s (FCA’s) new Consumer Duty which is due to come into force in July 2022.
What is the new Consumer Duty?
It’s new regulation that all FCA authorised firms including motor retailers, lenders and insurers will need to adhere to throughout the sales and aftersales journey. The aim? To create a shift in culture and behaviour that leads to a higher duty of care towards customers. The underlying philosophy here is that firms, and their staff, should be thinking ‘would I be happy to be treated in the way my firm treats its customers?’, or ‘would I recommend my firm’s products and services to my friends and family? This feeds into a new consumer principle that requires firms to act to deliver good outcomes for retail customers.
Why is it being introduced?
The FCA is still seeing consumer harm in many of the markets it regulates. Financial services products are complex and where firms are not transparent, provide poor information or unsuitable products at unfair prices this leads to bad outcomes for customers.
What will need to change in the motor retail and finance sectors?
Well this depends. There are some very reputable firms out there are already doing everything the FCA is proposing. But there are also many businesses that have some way to go. There are four key outcomes the FCA wants all firms it regulates to achieve:
Adequate consumer understanding – ensuring that whenever you go to buy a car on finance (for example) the information you receive from the lender and/or retailer gives you a good understanding of the finance products available, their features and the rights they provide. The objective is to ensure you make an informed decision about the finance product you enter into rather than receiving surprises mid-agreement or at the end of the agreement. This outcome very much plays into the role of the retailer or broker in communicating sufficient information to you at the point of sale, or clear online information being issued if you are purchasing a car/finance remotely.
Suitable products and services – this is very much about firms designing products and services that meet your needs. Are they easy to understand? Do they work for you if you are a vulnerable customer that has additional needs?
Fair price and value – the FCA focus mostly on firms providing ‘fair value’. Prices for financial service products are expected to vary depending on the risk associated with a given customer or across different groups of customers. But firms will need to start looking at undertaking an assessment of value. Does the finance product being provided to you represent fair value? Given a finance deal encompasses both the car and finance product retailers will likely need to consider the whole package and not just the finance element.
Adequate consumer support – this is all about making sure firms provide good customer service to ensure the benefits of products and services are realised. This relates to the entire period over which the customer has a relationship with the firm.
Total Car Check comment
The new Consumer Duty is another layer of regulation that serves to protect car buyers entering into a car finance or insurance product. Those professional reputable dealerships, lenders and insurers are already likely to be in a good place, while the standards of others will need to improve. Lenders and insurers will be constantly monitoring their dealer partners to ensure they are up to speed and and compliant with the new rules, with the FCA relying on this monitoring. But the proposals should also be seen as an opportunity rather than a risk for firms. What the FCA is spelling out is generally good sales practice. Retailers could shout more about how their processes adhere to rules and regulations such as the new Consumer Duty, Consumer Rights Act and Trading Standards (to name a few) and what rights these provide. This educates the customer, gives them peace of mind and reassures them that they are in safe hands (by the sales person being totally transparent). After all this is one of the main reasons you would buy a car from a retailer in the first place. Regulation is not always a great talking point when you are about to get the keys to your new car, but when it serves to promote confidence and trust then why not?