Thinking about taking advantage of finance options to purchase a new car? The Financial Conduct Authority (FCA) has your back with new rules designed to protect the interests of consumers and improve the overall finance experience. Known as UK Consumer Duty, the regulation was launched by the financial regulatory body in late 2022 and has been hailed as a “paradigm shift” for the finance industry.
Want to know more about Consumer Duty? Read on as we unpack everything you need to know about the new requirements, including the key benefits for consumers.
The key goals of UK Consumer Duty
At its core, UK Consumer Duty exists to ensure lenders “act to deliver good outcomes for retail customers”. For lenders to be approved by the FCA, they must offer products that meet the following cross-cutting rules published in the official Consumer Duty document:
- Act in good faith towards customers
- Avoid causing foreseeable harm to customers
- Allow and support customers to pursue their financial objectives
“Our new Duty sets higher and clearer standards of consumer protection across financial services, and requires firms to put their customers’ needs first,” reads the FCA website.
Targeted outcomes for Consumer Duty
In addition to an underlying set of rules, the FCA has released four targeted outcomes for UK Consumer Duty:
- Fair value – consumers receive fair prices and quality.
- Suitability and treatment – consumers receive suitable products and services, as well as good treatment.
- Confidence – consumers have strong confidence and levels of participation in markets.
- Access – diverse consumer needs are met.
The current state of lending in the UK
The latest statistics from the Finance and Leasing Association (FLA) reveal just how prevalent car finance is in the UK. In 2023, lenders issued a huge £115 billion of credit to British consumers. Motor finance represents around £50 billion of the total figure. No arguments here. Auto finance plays a critical role in getting Brits into the driver’s seats of cars.
Car finance is popular when purchasing used cars. However, new private car registrations are where car finance really steps up. In 2022, a huge 84% of all new private car registrations were purchased using finance.
Building on existing protection
Consumer Duty isn’t the only legislation designed to protect British car buyers. You’re already protected by several statutes, including the Consumer Rights Act passed by the government in 2015. You’re also protected by the Consumer Protection from Unfair Trading Regulations passed in 2008.
Introducing the 12th FCA principle
Previously, the FCA had laid out 11 core principles firms must comply with when lending money to consumers. These include the fair treatment of customers, transparent communication with regulators like the FCA, and overall integrity when conducting business. UK Consumer Duty has been added as a 12th principle and builds on the existing rules required by the FCA.
As mentioned above, Consumer Duty requires lenders to act in good faith towards customers, avoid causing harm and actively work to support their financial objectives.
For example, if a customer clearly states they would like the option to purchase the car at the end of a finance agreement, lenders should not recommend a lease, as this doesn’t include an option to purchase the vehicle at the end of the agreement. This would not be a positive outcome for the consumer and would therefore not meet Consumer Duty rules. Instead, lenders should actively help consumers achieve good outcomes. In the above example, the lender could recommend PCP finance, which would allow the customer to purchase the car at the end of the agreement.
Who does UK Consumer Duty apply to?
UK Consumer Duty applies to all lenders regulated by the Financial Conduct Authority. As the UK’s biggest and most influential financial watchdog, the FCA has enormous sway when it comes to consumer lending. This includes:
- High street and online banks
- Insurance companies
- Car dealers offering finance packages
What does the FCA say about Consumer Duty?
Matthew Long, Director of Payments and Digital Assets at the FCA, recently distributed a letter to all lenders regulated by the watchdog.
He wrote, “We recognise that the implementation of the Duty comes at a challenging time. However, we believe that embedding the Duty effectively will help payments firms continue to build trust amongst consumers in using the expanding range of products and services and enable the sector to continue to grow in a way that delivers consistently good outcomes for customers.”
He adds the goal is to trigger a “shift in culture and behaviour” and prompt lenders to keep the best interests of borrowers in mind at all times. “Whilst we appreciate that the facts of these can be hard to establish, firms should ensure that their treatment of customers who feel themselves to be victims and are distressed is not unduly harsh or unsupportive,” adds Long.
The UK Consumer Duty deadline
While Consumer Duty was announced in 2022, the legislation won’t officially launch until August 1, 2023. This means lenders have time to adjust their policies and products to meet the new requirements. Consumer Duty isn’t retroactive, which means loans offered before August 1 don’t need to meet the new requirements.
Will I benefit from UK Consumer Duty?
Consumer Duty was introduced to protect the interests of consumers using financial packages. If you’re considering using one of the following products after August 1, 2023, you will benefit from the new Consumer Duty rules:
- Personal Contract Purchase
- Hire Purchase
- Leasing deal
If you purchase a car outright, you won’t be using finance options and therefore won’t be protected by Consumer Duty.
Take advantage of new Consumer Duty protection
There are big changes on the horizon – and thanks to the new Consumer Duty protection rules, there’s never been a better time to take advantage of motor finance. At My Car Credit, we work with a wide range of FCA-approved lenders. Plus, our user-friendly calculator is designed to help you figure payments on car loan, just one of the ways we tick the UK Consumer Duty boxes!
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Require more help?
Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!