Everything lenders need to know ahead of Consumer Duty
Timescales ahead of the new Consumer Duty implementation deadline in July are tight. There is no ‘one size fits all’ approach, and lenders must tailor their plans to ensure they’re meeting the duty’s requirements in time.
There is already a lot of good practice happening across the industry, and most lenders are already acting within the spirit of the Consumer Duty by providing high standards of consumer protection. Now, however, is the time for lenders to consolidate the Consumer Duty framework within their organisation.
The following considerations are key to streamlining the implementation process, providing better standards of care for customers while mitigating any potential fines for non-compliance.
Reviewing products and services
The Financial Conduct Authority’s (FCA) deadline for confirming implementation plans passed in October; now, lenders need to focus their attention on the next phase – reviewing their existing products and services to comply with the duty. A good starting point is benchmarking current product features, conditions, and charges against leading market products.
Once they’ve identified the products that will be affected by the duty, lenders need to consider the customers that these products serve. Specifically, it’s their responsibility to account for the characteristics, risk profile, complexity, and nature of each product to ensure they are suitable for the intended customer.
Carrying out review processes
To begin with, lenders should carry out an initial review, prioritising the products or services with a higher risk of consumer harm. They must then map the customer journey from start to finish, for each product, thinking about all the various parties in the distribution chain, from brokers to arrears management firms. By investing in end-to-end outcome testing, they can ensure customers are protected at every stage of the process.
Lenders should also provide brokers with information on the target market and customer by 30 April 2023 at the latest. This means if any learnings emerge from the review process, these should be shared with brokers as early as possible.
Offering fair price and value
Alongside taking a complete look at the customer journey, lenders must consider the affordability of their products. Open Banking can help, support lenders in taking a holistic view of a customer’s finances and tailor products to meet their individual needs.
Lenders must also ensure that they are charging fair fees to borrowers, no matter how large or small the loan value may be. Amid the current cost-of-living squeeze, it’s important that lenders are actively protecting vulnerable borrowers and preventing them from slipping into ‘life-changing’ debt or adding surprise charges and hidden fees.
To this end, we encourage firms to undergo a thorough analysis of the price and value of their products. The assessment should consider any cancellation, late payment and refinancing fees that place further pressure on the end customer. Lenders should leverage customer research and data to inform their reviews.
Considering the non-financial costs
Lenders must also look at the non-financial costs that customers are subjected to. For instance, if customers consent to data sharing, this must be carried out in a fair and regulated fashion.
Open Banking is increasingly empowering lenders to better support their customers. However, for the technology to comply with the duty, lenders must ensure that data sharing is consent-based. This means going beyond the usual terms and conditions agreements and educating customers on the point at which they’re giving the third-party provider access to their data.
Often, customers are unclear on how to revoke consent and don’t understand whether they’re giving the lender one-time or ongoing access to their data. To remedy this, declarations must be explicitly consented to, in a similar manner to general data protection regulation consent agreements.
Lean on technology
Good customer outcomes are at the heart of the Consumer Duty, and lenders should take advantage of technology to improve customer service outcomes. With the right tools, lenders can run an efficient back office with an integrated servicing platform, ensuring that clients receive accurate and timely information.
Protecting vulnerable customers is a cornerstone of the Consumer Duty, and technology can still aid lenders in fulfilling this important responsibility. For instance, through risk profiling tools, lenders can run potential client scenarios and offer additional support should a borrower seem at risk of missing a monthly mortgage payment.