MEP Yvonne Fovargue: welcoming change in the financial sector

Makerfield MP Yvonne Fovargue

Finally, after many years, they were able to confirm that companies that lend or provide other financial services will be bound by a robust new obligation to consumers.

This new consumer obligation begins with a fundamental principle that “a business must act to deliver good results to retail customers” and is underpinned by three “cross-cutting rules” – that it must act in good faith, avoid causing harm that could be foreseen and help clients achieve their goals.

At first glance, this may not seem like much.

After all, the FCA already has protection for consumers contained in its rulebook, under the heading “Fair treatment of customers”.

But to be frank, however well-intentioned, the rules have never been particularly effective.

As my MP’s mailbag can attest, the old rules never really prevented borrowers from being overcharged or kept in the dark about cheaper or better suited products.

Nor have they really encouraged companies to pay more attention to affordability when making loans or to help when repayments become an issue.

The new Consumer Duty may well change all that.

Because it sets a higher and clearer benchmark for consumer protection across all financial services and compels businesses to put the needs of their customers first, it could fundamentally change the way banks operate and even the way the products are designed.

Financial services firms will now need to provide customers with information they can understand and offer products and services that are relevant to their purpose.

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

Customers should find switching, canceling and complaining as easy as buying the product or service.

The obligation for companies to avoid foreseeable harm is crucial and could be a game-changer.

This means they should be aware of their vulnerability as well as potential repayment issues.

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

For many banks, this means going back to the drawing board.

Given recent increases in the cost of living, these rule changes are timely.

Or they would be if companies didn’t have up to two years to comply.

It’s a shame when so many families are struggling and have to borrow more and more.

Now is the time they need help, not two years later.

It would be good for the financial services industry to embrace these new protections today, rather than waiting for them to be forced.

But with that caveat about timing, I warmly welcome the new rules.

In the long run, if it works as intended, the consumption requirement should focus businesses on the root causes of consumer harm, including poor product and service design and limited choices.

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

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