Financial firms put themselves in place of customers to achieve higher standard of care - Beverley Wood and Catherine MacPherson

The organised among us will be thinking about starting our Christmas shopping, and some of that could go on a credit card. As well as the festive seasonal change, you're also likely to see changes in how your bank, credit card company, mortgage provider or motor finance provider interact with you.

These changes should be designed with you at heart. They'll stem from the new Consumer Duty which sets a higher standard of care. Firms not only have to treat customers (and potential customers) fairly, they have to put them first.

The Consumer Duty is intended to bring about major cultural change. Firms are working hard to get ready for requirements that take effect on July 31, 2023. They are encouraged by the Financial Conduct Authority (FCA) to make changes sooner rather than later so consumers benefit now.

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Firms must act to deliver good outcomes for retail customers - but what does a "good outcome" looks like?

Companies may need to redesign online experiences to ensure customers first receive the information necessary to make informed choices, such as a clear explanation of costs and charges.

If your car breaks down and you tell your bank you want to increase your overdraft to pay for repairs, are you given the option to consider whether an increased overdraft is the most appropriate form of finance? Compare overdraft interest rates and charges against those offered on a credit card or 12-month loan, and the overdraft might be right. If your car cannot be fixed and you need a new one, it’s most likely a longer-term loan or hire purchase is less costly overall.

Under the new rules, banks (and other finance companies) must highlight different options that could be better for you at the most appropriate point in the process. The package of measures brought in by Consumer Duty is designed so firms act in good faith towards consumers to avoid foreseeable harm, enabling and supporting them in pursuing their financial objectives.

Right now, companies are putting themselves in the place of consumers to understand their regular experiences with them, going through journeys with different customer personas to figure out where they can make improvements. If you're a student applying for an overdraft, how and when are you given information? Is it weaved in at the most appropriate point or do you get dumped with long Terms and Conditions at the end?

Consumer Duty isn't just about the start or end of the relationship, it’s the whole life cycle. If you have a credit card, work 12-hour shifts on rotation and your credit card is stolen, but the only way to report it is over the phone 9am-4pm, this could be detrimental to you. Further changes covered by the new rules are impacted by assessments of behavioural bias. For example, does the colour and placement of an "apply now" button on a website impact customer behaviour? If so, companies may need to redesign online experiences to ensure customers aren’t clicking to apply without having first received information necessary to make informed choices, such as a clear explanation of costs and charges.

Previously, firms might have said: "We don't get complaints on this, it's not an issue". That won’t be good enough under the new rules.

They will need to continually review customer journeys and monitor customer outcomes. The FCA will be proactively contacting firms to request data to check how they are meeting Consumer Duty. In February 2020, 35 per cent of adults in the UK agreed financial firms are honest and transparent.

Hopefully, the hard work being done on Consumer Duty will improve this statistic.

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Beverley Wood is a Partner and Catherine MacPherson an Associate with Morton Fraser



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