New Consumer Duty laws should mean end of the hard sell
Buyers will no longer face the hard sell thanks to new Consumer Duty laws around the selling of financial products.
The new Consumer Duty legislation came into force on 31st July 2023 following a consultation by the Financial Conduct Authority.
The new laws have been called the ‘most significant change’ to UK financial services regulation in a decade and will impact the way car dealers can sell financial products to customers such as GAP insurance.
It is good news for car buyers: alongside the existing Consumer Rights Act, it provides additional reassurance for people accessing financial services through car dealerships by ensuring higher standards of consumer protection while putting the needs of customers first.
In other words, buyers should only be offered products and services that meet their needs and offer fair value.
These new rules set higher and clearer standards of consumer protection across financial services and require motor finance firms, brokers and dealers to put their customers’ needs first.
It will mean that consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it.
What are the Consumer Duty rules?
The key element of the new legislation is a Consumer Principle that ‘requires firms to act to deliver good outcomes for retail customers’. In addition, the legislation contains cross-cutting rules that are designed to help retailers achieve the main principle:
- Act in good faith
- Avoid causing foreseeable harm
- Enable and support retail customers to pursue their financial objectives
These cross-cutting rules are designed to cover a wide range of financial services, which means that not all will necessarily apply to services provided by dealers.
However, the need to avoid causing foreseeable harm is likely to impact how dealers sell financial products to customers. As an example, the FCA stated ‘certain commission models may cause consumer harm without appropriate oversight in place and create potential conflicts of interests for sales staff or agents’.
Consumer Duty rules: how will it affect me?
With the legislation only just coming into force, it is a little early to tell how this will affect the car-buying process in detail and how dealers will change their approach to dealing with customers.
It may also change the number and scope of financial products. Some dealerships have already stopped offering GAP insurance and more are expected to follow suit as they may find it difficult to match the value for money offered by GAP insurance providers outside the dealer network.
With the overriding principle of providing good customer outcomes, the likelihood is that dealers will review the information they provide and how it is delivered to ensure that costs, financial penalties and options are clearly explained during the process.
This will include both face-to-face communication as well as printed or written materials. That may mean as a customer there is more information to take in, but ultimately this is designed to give you all the necessary detail in order to make a decision that suits your needs.
It may also mean that dealers request more information on your circumstances in order to ensure they are offering appropriate products.
A further principle included in the legislation is the need to protect vulnerable customers of all kinds, whether they are experiencing physical or mental conditions, financial restrictions or have difficulty in understanding potentially complex agreements.
This could result in dealers asking if you have any specific requirements up front and providing alternative information or support during the process.