Making financial terms and conditions clearer

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“Clear, fair and not misleading” are the Financial Conduct Authority’s (FCA) criteria for banks’ communications. 

While financial firms must already treat consumers fairly, the FCA (the body which regulates financial services companies in the UK) wishes to further bolster the position of consumers, by implementing a more stringent ‘Consumer Duty’.

Under this proposed ‘Consumer Duty’, financial firms would be required to take steps to ensure that their terms and conditions are easy for customers to understand and that their products (eg insurance products, like insurance policies, or credit products, like mortgages) and services provide fair value to their customers.

While the full details of this ‘Consumer Duty’ are not yet known, with the FCA carrying out a consultation until the end of July 2021, the new rules are expected to come into effect from July 2022.

Read this blog to find out more.

 

What is the proposed ‘Consumer Duty’?

While many firms already operate with a focus on helping consumers, some financial services and/or products are still designed (whether intentionally or not) without truly considering the customer. This includes firms providing consumers with information that is misleadingly presented or difficult to understand.

To combat this, the FCA has proposed a new ‘Consumer Duty’ to further protect consumers by modernising the existing rules on banks’ communication and expanding the requirement for products to offer fair value. This new duty is intended to give consumers confidence that the financial products and services they buy are designed to deliver the benefits they expect and represent fair value. 

Through this ‘Consumer Duty’, the FCA is seeking to ensure that terms and conditions become clearer and easier to understand for consumers. Any new terms and conditions should clearly set out:

  • prices
  • how customers can complain 
  • how additional charges are calculated and when they apply
  • how customers can switch to another provider

Additionally, under the proposed changes, financial firms will need to make sure that any additional charges (eg late payment fees or cancellation charges) are fair.

This new ‘Consumer Duty’ also aims to prevent issues such as the ‘loyalty penalty’, under which longstanding insurance or utility customers (who may struggle to change providers) find themselves paying considerably more than newer customers for the same service.

 

Who would the duty apply to?

According to the FCA, the new ‘Consumer Duty’ would apply to a wide range of financial sectors and businesses, including:

  • banks
  • mortgage services
  • pension services
  • insurance providers
  • credit services

 

What does this new duty mean for financial firms?

By introducing the new rules, the FCA wants to change financial firms’ culture and behaviour by emphasising clear communication between the firms and consumers. 

Financial firms would need to update their existing terms and conditions to ensure that they comply with the requirements of the new ‘Consumer Duty’, ensuring that their communications with consumers and prices are clear and fair. 

 

I’m a consumer. What does this mean for me?

It is hoped that consumers are awarded a higher level of protection by introducing this’ Consumer Duty’. The new rules are intended to prevent financial firms from providing information that is misleadingly presented or difficult for consumers to understand. The rules are intended to help consumers to make good choices and be confident that they will receive good customer service.

If the changes go into effect and become binding, consumers like you will be able to understand communication from banks and be able to access products that provide fair value to you.

However, the exact details aren’t yet known including information on what exactly is classed as “fair value” and your rights (in relation to this Duty) if products are misleading or not fair in value.

For more information on the rights typically extended to consumers, read Doing business with consumers.

 

Do businesses benefit from this too?

The new rules are intended to apply only to consumers. A consumer is someone who purchases goods or services for personal use, as opposed to buying something on behalf of a business. While this new ‘Consumer Duty’ is intended to provide greater protection to consumers, it is unlikely that the protection will be extended to business customers. This is because the law presumes that businesses have the necessary bargaining power and commercial awareness to be able to enter into contracts on whatever terms they have both agreed on. 

For more information on the rights typically extended to businesses, read Using terms and conditions.

Rebecca Neumann
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