31 Jul 2024

Has the Consumer Duty helped consumers?

One year on from its launch, Which? explains what the new standards have achieved – and what more needs to be done

The Consumer Duty has saved consumers millions of pounds thanks to improvements in the behaviour of financial firms, claims the Financial Conduct Authority (FCA) on the one-year anniversary of the new regulations.

The Consumer Duty exists to ensure that consumers are receiving fair value, and the FCA has marked the anniversary of its launch by highlighting improvements to savings rates, customer communications and guaranteed asset protection (Gap) insurance.

But are these wins genuine? And have customers really started to feel the benefit? Here, Which? takes a look at the Consumer Duty one year on.

What is the Consumer Duty?

The Consumer Duty represents a move away from specific rules – within which firms can treat you how they wish – towards an overall expectation of consumer-friendly practices.

The new practices mean you should be treated better when accessing financial services such as pensions, investments, savings, credit cards, loans and mortgages.

There’s an overarching Consumer Principle, which requires firms to act to deliver good outcomes for their customers.

Companies must act in good faith toward customers, avoid foreseeable harm to them and enable them to pursue their financial objectives.

Find out more: New Consumer Duty launches: what will it mean for you?

What has the Consumer Duty achieved?

Speaking at an event to mark the one-year anniversary of the Consumer Duty, Sheldon Mills, executive director for consumers and competition at the FCA, was quick to point out improvements to savings rates, Gap insurance and other financial products, which he claims are thanks to the new regulations.

'Following our market review, we've seen firms act more quickly to increase rates following base rate increases,' said Mr Mills.

'The base rate rose by 0.25pp between July 2023 and February 2024. During this time, firms on average increased rates for easy access deposits by 0.5pp. We estimate this will give consumers around an additional £4bn in interest payments per year.'

Mills went on to argue that the watchdog's intervention on Gap insurance – which is often purchased to cover new cars in case of a write-off – encouraged firms to look at their commissioning structure and improve the value of their products for customers, saving them an estimated £70m.

He also made reference to the FCA writing to investment platforms regarding 'double dipping', whereby platforms retain some of the interest earned on customers' cash balances, while also charging a fee to customers for the cash they hold. According to Mills, the majority of firms written to have now stopped this procedure, saving customers £10m in fees annually.

Additionally, he praised firms for making changes to the way they communicate with their customers – many have simplified their terms and conditions and signposted customers to better-value products.

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Have consumers really felt the benefit?

Although it's true there has been some successes off the back of the Consumer Duty, there are areas where positive changes for customers have been less clear cut than the watchdog has implied.

Take savings rates. Deals offered by some of the country’s largest banks were so meagre in comparison to challenger banks and building societies that the FCA in July last year set out a 14-point action plan to ensure firms were appropriately passing on higher interest rates to customers. A year later and our research found that high street banks continue to lag behind their rivals, despite repeated warnings.

When we looked at savings rates across a range of account types, including instant-access savings accounts and Isas and one-year and five-year fixed deals, we found huge gaps between what big banks and challengers and building societies offer. When it came to instant-access savings accounts, in June of this year, the average rate for major banks was 1.6%, while the rates for building societies and challenger banks were around 2.9% and 3.3% respectively.

The regulator is currently reviewing banks’ performance and it’s crucial that it takes decisive action against firms that have failed to provide fair value, leaving them in no doubt that it will intervene against any future unfair practices.

Within the insurance market, the picture is equally confounding. Which? research has uncovered widespread evidence of significant harm caused by insurers' claims-handling processes.

Almost half of claimants identified at least one problem with how their claim was handled, indicating widespread industry failures to deliver the service levels required by the financial watchdog.

Which? believes it’s time for the regulator to get tough with insurance companies, so we have launched a campaign to End the Insurance Rip-Off.

Find out more: Which? calls for a crackdown on poor insurance service and value

What else is changing?

From 31 July, the duty is also in force for closed products and services.

These are older products that were sold before 31 July 2023 and haven't been marketed or sold to new customers since. The FCA gave firms an extra year to get to grips with the complexity of older systems and the increased work involved.

These so called 'zombie' products include heavily marketed but now discontinued products, such as child trust funds and Help to Buy Isas.

These are now covered under the Consumer Duty, and firms must consider whether they offer fair value under the rules.

On Tuesday, Graeme Reynolds, director of competition at the FCA, told the PA news agency that 31 July 'marks a key milestone for us in the consumer duty journey'.

'We’re going to be closely monitoring how firms are complying with the duty. We will of course be acting swiftly and assertively where they aren’t,' he said.

'And our message very much to consumers is: If you’re unhappy with any aspect of your financial services, of course complain to your provider, and if you’re not happy with the response you get then the Financial Ombudsman Service is there as well to deal with any of those concerns.'