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A new Consumer Duty - Expectations for retailers offering finance to consumers

September 8, 2023

Described as one of the biggest shake-ups in the history of retail financial regulation, the FCA’s Consumer Duty is now in force.

The Duty consists of a new Consumer Principle, that firms “must act to deliver good outcomes for retail customers”. Alongside the Principle, there are 3 cross-cutting rules and 4 consumer outcomes. Together, they set new expectations for all FCA regulated firms’ behaviour, culture, governance and customer outcomes.

No longer will firms be able to claim that they meet the rules because they treat customers fairly. Under the Duty, the very fabric of the organisation, the purpose of the business, its products, services and operations must be centred around delivering good outcomes for consumers.

All merchants in the retail sector, whether selling goods, services, medical treatments or education and training, will be in scope of the Consumer duty if they introduce their customers to regulated credit.

The Duty calls out a distinction between “Manufacturers”, who  create, develop, design, issue, operate or underwrite the financial product, and “Distributors” who offer, sell, recommend, advise on or provide the financial product. 

Unless they lend on their own account, merchants will fall under the “Distributor” category, meaning they will have to meet certain requirements under the duty, and specific requirements set by the “Manufacturers” - i.e. the lenders or, in the case of Deko, the credit broking partner. 

The Duty requires that all regulated firms take steps to identify, assess and prevent foreseeable harm to consumers. In the retail sector, some examples of foreseeable harm include misleading financial promotions, unclear or inaccurate information about credit products, putting pressure on customers to apply for credit, exploiting or not catering to the needs of consumers with vulnerable characteristics, not handling cancellations and returns fairly, not resolving disputes about goods or services or failing to deal with complaints fairly.

By now, merchants should have thought about these foreseeable harms and put policies, procedures, systems and controls in place to mitigate them. 

All regulated lenders will have provided information to merchants about their credit products, including their identified target market, product limitations and benefits, fair value assessments and distribution strategy. Merchants should be using this information to assure themselves that their sales practices are aligned with the lender’s target market and distribution strategies, and that they do not negatively impact the fair value of the credit products offered to their customers.

The Duty requires firms to act to deliver good outcomes for all retail consumers. This means taking a tailored approach depending on the individual needs of each customer. The retail sector attracts consumers of all ages, backgrounds, health and financial situations. Some sectors, for instance the mobility sector, are far more likely to attract consumers with particular needs and vulnerable characteristics. For example, some consumers in this sector may be hard of hearing, partially sighted, or have difficulties using a computer or mobile device.

All merchants, regardless of the market they operate in, should ensure they understand their target market, and whether there are any prevalent vulnerable characteristics within their customer base. If there are, it is important to understand the specific needs of these customers, and that sales staff are trained to recognise vulnerable customers and how to adapt their actions or communications to meet those needs.

Whilst the Duty sets a higher bar for consumer outcomes, it does not expect firms to eliminate complaints. Unfortunately, things will go wrong on occasion and consumers will feel the need to complain. Merchants should review their entire approach to complaint handling, especially where complaints are linked to a consumer credit agreement. 

Merchants should ensure it is easy for their customers to make a complaint, that their staff are able to identify complaints and know what to do with them. There will usually be an arrangement with the lender to ensure finance related complaints are handled by the right business. All FCA regulated businesses need to comply with the complaint handling rules in the FCA’s Dispute Resolution sourcebook (DISP). 

At Deko, we have compiled a handy summary of the key consumer duty information that our merchant partners need to know. It includes guidance on how to market finance options fairly and in compliance with FCA rules and sets out expectations for sales conduct. We’ve issued this to equip our merchant partners with the information needed to ensure they meet their obligations.

During the implementation phase, we shared training on the consumer duty and guidance on steps merchants should take to get themselves ready.

For merchants who still have things outstanding to implement the duty, you’re not alone! Implementation is not a ‘one and done’ task and will become business as usual.

It’s important to take time to review sales processes, websites and store promotions, staff training and quality monitoring, customer support policies and procedures, monitoring and reporting. Each should be designed to meet the needs and objectives of their customers, enable clear understanding of the key terms of finance options, deliver good outcomes for consumers and monitor the outcomes they receive.

When partnering with Deko, we can help merchants to understand their obligations from day 1 and support their ongoing compliance with the consumer duty.