Debt Awareness Week | Consumer Duty Couldn’t Have Come at a Better Time
Posted on 24th March 2023 at 11:29
According to the Office of National Statistics, rising prices are putting increasing pressure on many people living in Great Britain, and more than a fifth of adults have reported borrowing more money compared with a year ago.
It's Debt Awareness Week this week, and the theme is ‘Debt Can Happen to Anyone’. Our Regulation and Compliance Practice Lead, Mike Rogers, and our Credit Decisioning Practice Lead, Des Lee, discuss why Consumer Duty couldn’t have come at a better time to help tackle growing debt for all people…
Consumers are relying on short-term fixes as the cost of living crisis continues
Des: Credit Card use is at an all-time high as consumers look for short-term lending to bridge the gap. The need for short-term lending has also increased the use of products like Buy Now Pay Later, which is readily available through many retailers. Spreading payments may be an attractive proposition, but it can be problematic as consumers may be at risk of living beyond their means. What’s more, these offers are often the last to be paid off, as they may not necessarily be seen as ‘financial products’ by consumers which can cause further detriment to their debt burden.
Accessing the fairest and best products
Mike: I think personal debt is a big challenge that the country faces in the wake of the cost of living crisis. The upcoming Consumer Duty regulation has come at a good time since it sets out to help consumers get access to the fairest and best products while ensuring that they fully understand all the options.
Des: Several financial services businesses have launched tools that help improve a consumer’s understanding of their finances, often through education and pointing out how to better manage limits, payments and credit scores. Whilst this still means that the consumer is ultimately responsible for the management of their debt, it does help people to understand what the impact is on their overall creditworthiness.
Identifying at-risk customers through AI and data
Mike: The FCA, partly through the implementation of Consumer Duty, is pushing the financial services industry to make much better use of data to help and support consumers. There is now an expectation for firms to be proactive in identifying and supporting any consumers that have indicators of being vulnerable or likely to get into uncontrolled debt.
Des: The use of technology, like machine learning, is still in its infancy but there are companies who are using the power of AI to enhance their ability to gauge a consumer’s propensity to pay or their potential to get themselves into debt. This can only be beneficial in the long run as, in tandem with Consumer Duty, it will mean that consumers are only ever offered products that they can repay. The key question for a lot of companies is how they harness the power of the data to ensure that it is being used at every point of a consumer’s journey with the business.
Building consumer confidence in financial services
Mike: It is fundamental that consumers have advice that is readily available, in a form that can be easily understood, so that short-term and long-term money issues can be managed effectively. This is a key outcome of regulations that are being brought into force.
Des: The use of banking apps has allowed FS companies to provide more education to consumers with articles, links, and tips to improve their money management. It is essential that these companies continue to use technology to keep customers informed and educated to help them with money management as it means that consumers understand the consequences of poor money management in the short and long term on their ability to gain credit in the future.
Keeping customers secure
Des: Sadly, the financial services industry will always be attractive to scammers. As their operations get more sophisticated, it is up to the FS industry to ensure that they have the correct countermeasures in place to protect all consumers, especially the vulnerable. The use of technology and data to identify patterns and trends in consumer spending is becoming more important in allowing the industry to identify irregular activities. A lot of banks will have fraud detection systems in place to help counter irregular payments by asking the customer to confirm via text message, but there is always more that can be done to ensure that consumers are protected.
The introduction of Stronger Customer Authentication (SCA) for payments has also helped to combat fraud, via One Time Passwords (OTP) sent to customers via text or mobile app.
Read more about our one-stop Consumer Duty service, headed up by Mike Rogers, to help businesses understand where they are in their journey, outline steps required, and recommend solutions to embed controls, whether that's technical or governance. Download brochure here.
Step Change, the organisation behind Debt Awareness Week, has a free advice line with support available 24 hours a day, 7 days a week.
Tagged as: #RegulationandCompliance #RiskDecisioning
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