.png)
We’re six months in from the FCA’s Consumer Duty regulations coming into force, and whilst we are starting to see some great traction in the financial services and wealth sectors, there still seems some way to go for the consumer finance industry.
Despite what some might think, the introduction of Consumer Duty will have a fundamental impact on all retail consumer creditors offering a finance plan. Regardless of whether the purchase on credit is big or small, from buying a car to a pair of glasses, all firms must ensure they can identify each and every instance of vulnerability and provide ‘good outcomes’ for their customers and provide appropriate support.
The impact of this on the UK consumer finance market is huge. Take the motor finance market, for example, the rate at which cars are being bought on finance shows no sign of slowing, with the average sum borrowed in the UK for a new vehicle shooting up from £11,964 to £25,039 in the space of just 13 years.
With such large amounts being spent, and with the cost-of-living crisis putting household budgets under significant pressure, it’s vitally important that potential customers are accurately assessed for any risk of vulnerability before they’re offered a finance arrangement.
Vulnerability could stem from illness, divorce or low resilience – triggers that have all been defined by the FCA – as well as from a threat to someone’s income or their suitability for credit. It’s the emotional, mental and cognitive response to these circumstances that leaves someone vulnerable, and as such, they must all be correctly identified.
This identification process is complex, even for a trained clinician, but for sales professionals who lack an in-depth knowledge of the nature of vulnerability, identifying at-risk customers will prove an incredibly difficult task without technological support.
It's understandable that this fundamental change in requirements will take time to embed.
One of the key misconceptions we have witnessed from the automotive industry so far is that customer vulnerability identification will be time-consuming and will negatively impact sales. Many dealerships have admitted to us that they are concerned that customers will not want to engage with the process for fear that the ‘extra questions’ may well lose them sales.
But, in our experience, this is far from the truth. What we are hearing from our clients is that the vulnerability identification process is actually quick, simple, and most importantly, doesn’t impact the sales journey as long as the right technology is in place.
In its recent update, the FCA applauded those firms who have made a shift in their working practices and culture. However, the regulator has also given a pretty stark warning that the Consumer Duty is not a one-off exercise, reminding us all that firms will need to make sure they are continuously learning and improving.
We believe data is central to this. Those that are starting to make traction have started to build up hard data on vulnerability. And six months in, we believe that there’s a real opportunity for these firms to assess what they’ve gathered so far, take stock, and see if their target market assumptions are playing out as expected. And if any vulnerabilities have been identified, they could also look at how well that individual customer has actually been supported. With this knowledge, they can then determine whether their preparations were fit for purpose or if there are changes required and then develop from there. Of course, the FCA is not expecting a transformation overnight, but it is expecting dealerships and manufacturers to build their banks of vulnerability data and learn and adapt based on this.
There may be some dealers and manufactures who may feel, based on their size for example, that they don’t need to change their ways of working in line with their Consumer Duty obligations just yet. This is a dangerous misconception. While it may be true that the regulator will focus most of its attention on the largest players, it has been very clear that there will be no exceptions made. While we have yet to hear of the FCA hauling anyone over the coals (in any industry), we predict that underperforming firms will start being brought into the spotlight by the end of 2024.
To mitigate this, we introduced our ‘Duty of Care’ assessment tool last year, built specifically to cater for the retail consumer credit market, and this quickly and easily provides lenders and brokers with the reassurance that they can consistently and objectively identify their vulnerable customers and provide tips and advice on how best to support them as they go through the finance process.
To find out more about our Duty of Care assessment, please get in contact with George Bennett: george@comentis.co.uk