Is the Consumer Duty working as intended one year in? - Rocio Concha
We at Which? welcomed its introduction. Far from being an instrument with which to wrap firms in extra red tape, we supported the Financial Conduct Authority’s central goal of making sure that when customers dealt with businesses, they would be treated well and could be confident that the products and services they were buying were of fair value.
So, a year in - how’s it shaping up?
There has been some success. For example, in the wealth management sector, it’s clear that firms have taken on board the new requirements.
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St James’s Place, the country’s largest wealth management company, revamped how it charges customers following regulatory pressure.
However, there are other areas where positive changes for customers have been less clear cut.
Take savings rates. Deals offered by some of the country’s largest banks were so meagre in comparison to challenger banks and building societies that in July last year the FCA set out a 14-point action plan to ensure firms were appropriately passing on higher interest rates to customers.
A year later, our research has found that high street banks continue to lag behind their rivals, despite repeated warnings.
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Hide AdWhen we looked at savings rates across a range of account types, including instant-access savings accounts and ISAs and one-year and five-year fixed deals, we found huge gaps between what big banks and challengers and building societies offer.
When it came to instant-access savings accounts, in June of this year, the average rate for major banks was 1.6 per cent, while the rates for building societies and challenger banks was around 2.9 per cent and 3.3 per cent respectively.
The regulator is currently reviewing banks’ performance and it’s crucial that it takes decisive action against firms that have failed to provide fair value, leaving them in no doubt that they will intervene against any future unfair practices.
In the insurance market, the picture is equally confounding.
Which? research has revealed two main issues.
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Hide AdFirst, the excessive amount of interest some firms charge customers to pay for cover monthly rather than annually. And second, the effectiveness of how firms deal with customer claims.
The cost of paying for cover monthly can balloon the cost for those who can least afford it. Some firms charge interest rates of nearly 40 per cent for car insurance and almost 35 per cent for home insurance. Again, it’s difficult to see how the current cost of these products represent fair value to the customer.
When we surveyed over 3,300 recent claimants for motor, home, travel and pet insurance, we found that almost half (48 per cent) had experienced at least one problem, such as repeatedly chasing insurers or having to continuously resubmit supporting evidence, during the process.
Where insurers brought in third parties to deal with claims, these problems were particularly acute.
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Hide AdThe idea that financial services firms should treat customers well didn’t begin in July 2023. There have been several regulatory requirements which predate the Consumer Duty for businesses to follow.
But the Duty has placed closer scrutiny on the products and services that firms offer.
Our support of it isn’t about welcoming regulation for regulation’s sake. It’s about improving the relationship between companies and consumers.
A happy customer is more likely to stay with a brand and recommend it to friends and family.
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Hide AdUnderpinning this must be a regulator unafraid to take tough and meaningful action against firms that don’t perform. Seeing that in action really would be worth celebrating.
Rocio Concha is director of policy and advocacy and chief economist at Which?
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