With 2022 behind us, we face a long list of headwinds that are focussing our attention even more on how we are helping our clients respond to Consumer Duty.
- Spiraling food and energy prices push inflation beyond 40+ year highs
- Increasing interest rates - now at a 14 year high - to curb inflation
- Wage inflation to help businesses sustain production levels
- Ongoing industrial action across core UK sectors/services
- No end in sight for the War in Ukraine
It’s no wonder that the Collins English Dictionary is adding ‘permacrisis’ to the 2023 edition. Looking closer into the situation, our December Market Pulse Webinar with Oxford Economics showed a number of areas where consumers might be particularly impacted. The areas listed below, which are directly linked to credit risk, are worth pointing out as they’re closely tied to how Consumer Duty can help shape the industry, amongst others:
- Mortgage price shock for those coming off fixed rates
- Longer repayment periods and an increase on lending into retirement
Gradual rise in delinquency as those in debt struggle to meet payments
- Increase in unsecured credit applications especially from more vulnerable people, despite rising costs of credit linked to interest rates
So how does this link to Consumer Duty?
In July 2022 the FCA finalised their Consumer Duty rules and guidance, bringing in a new principle and three high level cross cutting rules alongside a raft of underpinning rules and expectations. All have the aim of driving four outcomes for retail customers with more focus on consumer understanding, price and value, product and services and consumer support.
In his July 2022 Dear CEO letter relating to the rising cost of living, Sheldon Mills, Executive Director at the FCA, referred to existing FCA requirements to support consumers and confirmed “we are not waiting for the Duty to come in before we act to improve consumer outcomes”.
Since then the economic landscape has worsened along with further pressure on consumers and firms. In their updated Financial Lives Survey the FCA called out that 12.9 million UK adults had low financial resilience – 1 in 4 (24%) of all UK adults - and 4.2 million UK adults were already in financial difficulty (missing domestic bills and credit commitments in 3 or more of the last 6 months).
More than ever firms need to ensure they are accounting for vulnerable customers within their business models, including credit decisioning, arrears management and associated risk; the Duty amplifies this even further. Firms’ senior management are also required by now to have approved their plans to implement the Consumer Duty by July 2023 for “open” products and services and the FCA are now in the process of reaching out to understand how firms’ implementation plans are progressing; in essence time is short.
And consider this…a recent webinar by Allen & Overy on the root cause behind regulatory enforcement themes since January 2021 flagged some stark numbers including:
- 42% of firms were ‘on notice’ of issues that led to enforcement action, through reviews and interactions with regulators.
- 32% of firms failed to interpret (and therefore implement) applicable regulatory requirements correctly.
So are firms evolving their capabilities to meet the new and evolving standards expected under the Consumer Duty? Do they understand their target markets and customers' needs and do they have a culture which puts the customer at the core of their business models and strategy? Can firms evidence how they are delivering good outcomes through their products and services? Are firms leveraging analytical capabilities and doing all they can to lend responsibly, act on early signs of financial difficulty and deploy appropriate forbearance strategies?
How we can help
Equifax has a vast array of data sets and products that are designed to assist clients with their Duty obligations. These range from ensuring borrowing is affordable to ensuring those in financial difficulty are provided with appropriate treatments and outcomes. Equifax also has Open Banking services that include one of the UK’s most accurate categorisation engines, enabling clients to use more timely, accurate behavioral banking data to improve assessments.
We are continually running assessments and health checks to help our clients stay ahead of existing and new regulatory requirements and principles.
Equifax's consultancy & analytics teams work closely with a wide range of clients in both a lending and non-lending context to understand how data and analytics can support firms in their implementation of the Duty.
In the 120 year plus history of Equifax, we have a long history of helping our clients build better customer outcomes and make better decisions. Consumer Duty shines a brighter light once again on the need to always be improving your ability to accurately and efficiently help your customers live their best financial lives which is a fundamental value we also share.
Get in touch if you would like to understand more about how your business can better respond to Consumer Duty today and in the years ahead.