The Financial Conduct Authority (FCA) has proposed the introduction of a new Principle that “a firm must act to deliver good outcomes for retail customers” together with three cross-cutting rules and four proposed customer outcomes. The FCA wants firms to put themselves in their customers’ shoes and ask “would I be happy to be treated in the way my firm treats its customers?”

Asset Finance, Consumer Finance and Motor Finance products are used by a diverse range of customers which poses a challenge in delivering a good outcome for all types of customers. Knowing their customer base is critical for firms when implementing the Consumer Duty.

5 things firms should be doing now

1. Understanding customers – Consumer credit products are used by all in society. This means that assessing target markets is relatively straightforward, but a customer base is likely to have a range of vulnerabilities. As a first step. firms should analyse their customer base to understand their customer needs including what specific vulnerabilities exist in their customer base.

2. Product risk assessment – Firms should assess the risks posed by their products. Are there risks which mean that products are only suitable for a certain type of customer e.g. are high late payment fees appropriate for a product with high levels of default?

3. Sales channel assessment – Consider what risks sales channels pose to customers.

• Online – Online journeys are universal, allowing little differentiation for customer needs. The FCA’s finalised guidance on the fair treatment of vulnerable customers emphasises that online journeys must consider the needs of all customers e.g.:
  • firms with online customer journeys should consider how to deliver a good outcome to customers with lower digital literacy or poorer English language skills.
  • if a firm knows that customers are not spending adequate time reading their terms and conditions then they should consider how to summarise and better highlight terms.
• Telephone – Customers are often expected to understand complex terms and conditions in a short space of time on a telephone call. Firms should consider whether a telephone customer should be directed to different media (such as online or a video) to provide a more effective visual explanation of a credit product.

4. Customer understanding – after identifying customer needs and product risks firms should consider their customer documentation and customer journey. Consumer credit firms have a difficult challenge in meeting the consumer understanding outcome given the prescribed and inflexible nature of consumer credit documents. Layering of information throughout the customer journey will be key for consumer credit firms. Firms should:

• analyse complaints / customer feedback to understand where customers do not currently understand products (e.g. recent sector issues such as commission disclosure, excess mileage or consequences of cancellation);
• review terms and conditions focussing on simplification;
• convene focus groups to assess customer understanding;
• consider and test using other means of explaining terms e.g the use of diagrams, tables or videos or British Sign Language videos or explanations in different languages to assist vulnerable customers;

5. Monitoring – Firms should devise their Consumer Duty monitoring and records framework showing outcomes monitoring, root cause analysis where customers have received poor outcomes and changes addressing those poor outcomes.