If you’re thinking about buying a car, there are several things that protect your rights. For example, the Consumer Rights Act and the Consumer Protection from Unfair Trading Regulations come into play when making a purchase.
More recently, the Financial Conduct Authority (FCA) has announced another piece of legislation coming into effect from August 2023 – Consumer Duty.
So, what is Consumer Duty?
Consumer Duty is a new protection for customers aimed at those using finance to purchase goods and services. This legislation is part of the FCA’s consumer principles and will be the 12th principle. This area states that companies must “act to deliver good outcomes for retail customers”. In short, businesses have a responsibility to help customers make the best decisions on finance based on their needs.
The new legislation applies to all companies regulated by the FCA. So, it’s not just car leasing companies – insurance brokers and banks come under the remit. However, Consumer Duty only applies when taking out a finance agreement. So, products such as Hire Purchase (HP) and Personal Contract Purchase (PCP) are examples of where the principle applies.
When does Consumer Duty come into force?
Consumer Duty will apply from 1 August 2023. So, if there are any unsolved issues with a finance agreement prior to this, you cannot use Consumer Duty rules in this case.
What are the rules of Consumer Duty?
As the FCA wants every customer to experience a good outcome when taking out a finance agreement, there are some rules businesses must follow. These include:
- Act in good faith towards customers
- Avoid causing foreseeable harm to customers
- Allow and support customers to pursue their financial objectives
These three rules cover all FCA-regulated companies, so some may apply more than others to specific businesses.
For example, the first two rules can be attributed firmly to car finance companies. However, the third rule is more likely to fit better with financial and investment organisations.
However, the overarching rules apply to all, so each is required to be integrated into new processes from August 2023.
What are the outcomes of Consumer Duty?
Alongside the main rules of this principle, Consumer Duty sets out four outcomes to ensure customers receive the best and most appropriate service for their needs. The basic overview of these outcomes includes:
Products and services
The lifecycle of a product or service should have full governance and evidence that the product has been designed and marketed correctly and targeted at the appropriate people.
Price and value
Every aspect of pricing should be understandable and transparent. Customers should also receive fair value, particularly in relation to additional charges and fees.
Consumer understanding
Businesses must ensure customers have the right information to make informed decisions before purchasing a product or service. Risks and features must be communicated clearly. Plus, organisations are required to understand specific customer needs. For example, establishing the best communication methods.
Consumer support
For customers to experience a good outcome, they must be able to use the financial product appropriately, and companies should support this. Processes may need adapting if customers don’t receive good outcomes.
How does Consumer Duty affect car leasing companies?
Most car finance and leasing businesses already strive to provide customers with the best possible outcomes. However, with this coming into effect from August 2023, firms should implement training surrounding responsibilities of Consumer Duty and how to ensure good outcomes.
To assist car leasing businesses in understanding the expectations of Consumer Duty, the FCA has training available. In addition, webinars are available for sector-specific implementation and cover everything needed for this new principle.
What changes may customers experience with the implementation of Consumer Duty?
Consumers may see some slight changes when applying for vehicle finance. However, many car finance companies already cover everything fully to ensure a good service and outcome.
For example, additional questions about financial circumstances or lifestyle may apply, so lenders can ensure customers receive the right deal for their needs.
There may also be a requirement for additional forms to fill out or read before signing an agreement.
The changes customers experience could be slight or unnoticeable. However, this new legislation will help to build customer loyalty. Every interaction a consumer has with a finance company should ensure they feel confident in their decision. Additional processes may also provide trust and assurance they have the right products for their needs.
What happens if Consumer Duty rules are broken?
If a customer believes rules under the new Consumer Duty principle have been broken, the first course of action is to communicate this to the car leasing or finance company. Most issues can be resolved amicably to adhere to the outcomes.
However, if customers feel they have yet to reach an acceptable resolution, they could file a complaint with the Financial Ombudsman Service. They will handle any disputes with FCA-regulated companies.
It’s important to note the principle comes into effect from August 2023. In addition, any backdated issues are not covered by the new Consumer Duty legalisation.
Making finance clearer for consumers
The main aim of Consumer Duty legislation is to improve the car leasing experience for everyone. The FCA will incorporate this principle into their overarching regulatory process. So, this element will work within the framework rather than as a standalone feature.
When the legislation comes into place, businesses will get a clearer view of how to stay consistent with Consumer Duty and develop an understanding of what falls inside and outside the rules.
The FCA is hoping this provides a behavioural and cultural shift and encourages firms to focus on good outcomes for customers.
Stay up to date with the latest car leasing news
For more information on Consumer Duty, the FCA has extensive information on the new rules and outcomes. Additionally, check out our blog for the latest car leasing news and updates.
