The Consumer Duty: the clock is ticking…

To quote the FCA, the Consumer Duty “sets higher and clearer standards of consumer protection across financial services, and requires firms to put their customers’ needs first.”

It almost sounds simple when you put it like that. With less than 10 weeks to go until the rules take effect though, many regulated bodies will be ‘pedal to the metal’ to be ready.

In the debt advice sector, there still seems to be a fair bit of confusion of what the Consumer Duty means in practice. This is probably not surprising given the vast majority of debt advice agencies will only have seen very light touch FCA engagement since the FCA took over debt counselling regulation back in 2014*. Past performance is no guarantee of future returns however – the FCA has clearly stated its expectations of the charitable sector are the same as the commercial sector – so all regulated debt advice agencies should be working to make sure they meet the standards from 31 July 2023.

A welcome new policy

The concept of the Consumer Duty is very welcome. It is bold of the FCA to do this at a time when they’ve been under pressure, we’re all in a post-pandemic & cost of living crisis environment and in light of a government more anti-regulation than pro-regulation. Describing a regulator as ‘bold’ often has negative connotations but on this occasion, I mean it as a genuine positive.  

The key caveat being the Duty must now be implemented fully as intended. The FCA cannot launch a landscape shifting policy then not make sure it really delivers cultural change. That means strong resourcing from the FCA but also from regulated firms.

What does this mean for debt advice agencies?

A new regulatory expectation really won’t come easy at a time of tight resources and high demand. However, debt advice agencies should seek to embrace the Duty. Seeing this purely as an exercise of documenting what is already done is a missed opportunity. I’d suggest using it as a chance to challenge existing practice and really assure yourself everything you do is built around client needs.

Funders, trustees and senior managers will have to give operational teams the time, space and resources to do this properly.

While I expect nine out of every ten things regulated debt advice agencies already do will be driving towards good outcomes for clients, the Consumer Duty is the opportunity to eliminate the one out of ten example which might not quite be as good as it could be.

Some specifics from FCA guidance for debt advice agencies

The FCA guidance, like much of the broader debt advice rules, feels mainly targeted at commercial firms. I requested clarity from FCA about whether this is deliberate. They responded to say they see more risk in the commercial sector, but the expectations are as high for the charitable sector as they are for the commercial sector. So, to reiterate, all regulated debt advice agencies will need to consider the Duty.  

The FCA is clearly looking for agencies to have adapted services in response to the cost-of-living crisis – if agencies haven’t done that already, they should consider it now.

FCA is also expecting agencies to have scenario planning for a big spike in demand – debt advice bodies should be doing all they can to be ready for large numbers of additional people wanting to use their services. I recognise this is easier said than done but providers might consider working in partnership with other agencies and, if needed, steering capable and suitable clients to less resource intensive parts of their service for example.

FCA want agencies to challenge themselves that they are communicating as clearly as possible with customers, particularly ensuring the client has good understanding of the advice provided. I welcome this but have requested FCA clarify this with guidance – the risk is (and what actually happens in a lot of cases) people are just overloaded with information post-advice, sometimes 40-50 page letters, which agencies do to be extra sure they meet the regulations. The client has no chance of absorbing all of this and doesn’t seem likely it helps people understand the advice they’ve received.  

What it might mean for a debt advice agency’s interaction with creditors

For financial services creditors, they might be willing to help advisers more. The Consumer Duty means firms now have a duty to put their customers’ needs first.

Making no promises here but similarly they may be willing to fund agencies more for their work. However, this comes with a caveat, in exchange they may want more data, data received in real time and/or assurances about how quickly their customers will be seen.

Financial services debts may ultimately appear less often on clients’ debt lists. This is because lending criteria will probably tighten as a result of the Duty (as firms might not want a duty to riskier customers), forbearance approaches will get better, and firms will probably be more pro-active in engaging clients at risk of falling behind.

What the Consumer Duty doesn’t capture

What the Consumer Duty doesn’t cover is at least as important as what it does.

It will only apply to financial services creditors. Others such as energy firms, local authorities, and landlords aren’t covered, so the Duty won’t be a silver bullet. Particularly as these are the debts which tend to cause the most headaches already.

It won’t help the people who are financially excluded. If anything, as mentioned before, the Duty might make firms more cautious about making those on the fringes customers, so access may reduce.

Conclusion

If FCA and all regulated firms fully embrace the Consumer Duty, the UK’s conduct regulation regime will be the world leader. There is still a lot of work to be done yet, however, to get there. For debt advice agencies (and their funders and leaders), please make sure you’re doing your bit – not only is it the right thing to do, you’ll also want to avoid the sharper end of the FCA’s attention.

Finally, I hope government and policy makers will recognise the bits of the landscape the Consumer Duty won’t tackle; creditors outside of FCA regulation and the people who can’t access financial services in the first place. Consumer Duty is a big step forward but it can’t provide a level playing field for everyone.

Craig is Clear Consultancy Services’ Lead Consultant. He formerly delivered supervision and policy at the FCA in the Consumer Credit sector, including debt advice.

*there are some very notable exceptions to this of course. Just ask the fee-chargers and the agencies who handle client assets…