Yvonne Fovargue MP: Welcome change in finance industry

At last, after many years, they were able to confirm that firms that lend or provide other financial services will be bound by a robust new duty to consumers.

This new Consumer Duty starts with an overarching principle that “a firm must act to deliver good outcomes for retail customers” and is backed up by three “cross-cutting rules” – that they must act in good faith, avoid causing harm which could be foreseen and helping customers in achieving their goals.

At first sight, this might not sound like much.

After all, the FCA already has protection for consumers contained in its rule book, under the heading of Treating Customers Fairly.

But to be frank, though they may have been well meaning, the rules have never been particularly effective.

As my MP’s postbag can attest, the old rules have never really stopped borrowers from being over-charged or from being kept in the dark about cheaper or better-fit products.

Nor have they really encouraged firms to pay more attention to affordability when making loans in the first place or to help when repayments become an issue.

The new Consumer Duty could well change all that.

Because it sets a higher and clearer benchmark of consumer protection across financial services and require firms to put their customers’ needs first, it could fundamentally alter the way banks operate and even the way products are designed.

Financial services firms will now have to provide customers with information they can understand and offer products and services that are fit for purpose.

They will be required to offer new customers the best product or service, and offer value for money, or let them know if they could get a better deal than their current one.

Customers should find it as easy to switch products and cancel and complain as it was for them to buy the product or service.

The requirement for firms to avoid harm that could be foreseen is crucial and could be a real game-changer.

It means they must be aware of vulnerability as well as potential problems of repayment.

The fact is many debt problems are reasonably foreseeable and many financial products on the market simply exploit this fact.

For many banks, this means a return to the drawing-board.

Given the recent increases to the cost-of-living these rule changes are timely.

Or they would be if firms were not being given up to two years to comply.

This is a shame when so many families are struggling and having to borrow more and more.

Now is the time when they need help, not two years down the line.

It would be good if the financial services industry got on board today with these new protections, rather than waiting until they are forced.

But with this one caveat about timing, I am giving a warm welcome to the new rules.

Over the long term, if it works as intended, the Consumer Duty should focus firms on the root causes of consumer harm, including poor product and service design and constrained choice.

Ideally, it will help more people make better financial decisions and that has to be a good thing.