Consumer Duty could have “unintended consequences”

Speaking at the trade body’s annual dinner, David Postings also described his concerns around the likelihood of “unintended consequences” coming off the back of the Duty - driven by, for example, the clarity over the definition of “good outcomes”. This, according to Postings, means there’s a real risk that firms will take a low-risk approach, which could result in the withdrawal of products and the tightening of sales criteria.  

This would effectively exclude those who might need the greatest financial support over time. He added: “As an example, how do you judge whether a fixed or variable rate mortgage taken out today would result in a good outcome for the customer? You need a crystal ball.  

“Moreover, if that mortgage gets converted to interest-only for a period and increases the cost because of a desire to help in the current financial crisis, is that a good outcome? Who decides? The customer? the Financial Conduct Authority (FCA)? or possibly the claims management companies, or the Financial Ombudsman Service?  
“Those views on what is good may not form for many years and of course, will be shaped by the benefit of 20/20 hindsight. So, faced with those challenges I imagine lenders will think carefully and try to avoid problems down the line.  

“This, in my view, might result in exclusion. We are not going to passively let this happen.”  

Also speaking at the dinner was the FCA’s chief executive Nikhil Rathi, who – alongside explaining the goals of the duty – said on the topic of “risk aversion in firms and even withdrawal of products for difficult to reach groups” the regulator is monitoring this situation closely in order to make sure. 

He added: “And as we work to enable you to take full advantage of digitalisation, this must come hand in hand with making sure that market developments don’t leave groups of consumers behind, particularly those most vulnerable or the least digitally enabled.   

“That is why the Consumer Duty has a particular focus on vulnerable consumers and taking reasonable steps to ensure informed decision making.”  

Rathi also said, as firms “seem to be on track” to hit the implementation deadlines for the duty, there’s no need to push the Consumer Duty deadline back.