Consumer duty  

FCA: ‘Cost of living important context for the consumer duty’

FCA: ‘Cost of living important context for the consumer duty’

The Financial Conduct Authority has outlined what it expects from firms when assessing their products and services to ensure there is a "reasonable relationship" between the price paid and the overall benefit consumers receive.

In a podcast called Inside FCA: What is the consumer duty price and value outcome?, head of competition policy, Ed Smith explained that price and value is one of the four outcomes that firms need to assess under the consumer duty. 

There are four in total: the products and services outcome, the price and value outcome, the consumer support outcome and the consumer understanding outcome. 

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“Price and value is one of the core ones and essentially what it's saying is that firms need to ensure that the price a customer pays for a product is reasonable compared to the overall benefits that the customer gets from the product,” he said.

Smith said the FCA has seen many instances of financial products that represent poor value.

Using insurance as one example, he said there are some insurance products where the customer actually receives few benefits in terms of the cover that they get in relation to what is often quite a significant premium; or where they pay broker commissions that can be unreasonable relative to the benefits of the products that they get. 

Other examples might be savings accounts where the regulator has done a lot of work looking at what long standing customers receive in terms of interest rate levels.

"And often these examples of poor value are taking advantage, firms are taking advantage of behavioural biases that we as consumers have,” he said. “So they can use, for example, flashy upfront discounts to hide the true cost of a product to a customer. 

“Or they might try and attract customers at the point of sale through impulse add on products that they probably don't really need and can represent poor value.” 

Smith said with the price and value outcome, the regulator is ready to put an onus on firms to address poor value, to really examine and challenge themselves about whether products are really a reasonable cost compared to the benefits that they give to the customer.

Amid the cost of living crisis, Smith said it is “important context” for the new consumer duty.

“It's doubly important in hard times that customers can be sure they're getting fair value for the products and are not being ripped off or paying for services that they don't really use or value,” he said.

“So, given the cost-of-living crisis in context, it's really important that firms challenge themselves on whether the cost of the product is commensurate with the benefits that a customer receives.”

Smith said the important thing is that cost of living really underlines the importance of the price and value outcome.