On July 31, 2023, a significant change in consumer protection known as the "Consumer Duty" was introduced, impacting the way motor vehicles are sold. Introduced by the Financial Conduct Authority (FCA), the Consumer Duty aims to establish higher standards of consumer protection and clarity in the financial services sector, including motor finance providers and retailers involved in motor finance arrangements.
The FCA's motivation for introducing the Consumer Duty stems from their regular discovery of unfair practices and approaches that harm consumers, such as inappropriate financial products, exorbitant fees, and inadequate support. The COVID-19 pandemic has exacerbated financial vulnerabilities for many individuals, prompting the need for a cultural shift in the way financial products and services are sold to consumers.
The new Consumer Duty encompasses four key areas that firms must address to deliver positive outcomes for consumers:
- Products and services: Dealers and lenders are required to provide appropriate and suitable financial products and services that lead to favourable outcomes for consumers. This entails asking customers relevant questions, understanding their intended use of the vehicle, their budget, and whether they plan to own the vehicle at the agreement's end.
- Price and value: Finance products must offer fair value, and the price charged for such products must be justified based on the value they provide. Firms will need to present a "value statement" for each arranged deal, considering factors like consumers' understanding of the product's value and its flexibility.
- Consumer understanding: Firms must ensure that customers have a clear understanding of the finance products they use. This involves providing comprehensive and transparent information on product features, costs, benefits, and the rights and flexibility the finance product offers throughout the agreement.
- Consumer support: Firms are expected to provide adequate support that meets consumers' needs throughout their relationship with dealers and finance providers. Delivering excellent customer service will enable consumers to fully utilize the benefits of the products and services they purchase.
The implementation of the Consumer Duty will apply to both new and existing motor finance agreements. For car buyers, the Consumer Duty brings positive implications. Firms will be obligated to ensure that customers comprehend finance products, receive proper support throughout their interactions, and obtain fair value. To achieve this, firms are required to appoint a "Consumer Duty champion" at the board level to consistently consider customer outcomes in all decisions, fostering cultural improvements and promoting competition.
While some of these rules are already being followed to some extent, all retailers and lenders will need to elevate their practices and provide evidence of adhering to the Consumer Duty outcomes. Non-compliance may result in enforcement action from the FCA, with the Financial Ombudsman Service also holding firms to higher standards when addressing consumer complaints. Ultimately, the Consumer Duty aims to protect and empower car buyers, ensuring a more transparent and fair experience when purchasing motor finance products.
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