Consumer Champion: The consumer needs more clout

The huge power of the financial services industry means the consumer often loses out. KAY BLAIR explains how the Financial Services Consumer Panel seeks to redress the balance.

Established in 2000 by the Financial Services and Markets Act, the Financial Services Consumer Panel aims to inject an informed consumer perspective into the deliberations of the regulator, the Financial Services Authority (FSA). Our perspective is collaborative rather than adversarial.

Unlike other consumer lobbying bodies, we’re focused specifically on the financial services market and can make a significant impact at an early stage of the FSA’s policy development.

We’re needed because, in an industry that has clout and can exert huge pressure, the voice of the consumer is less strong. Yet, it’s vital that the consumer’s needs and interests are taken into account, given the role that financial services plays in our lives. We want consumers to feel more confident about engaging with the industry, but for that to happen they need to feel they’re being treated fairly – that the rhetoric about Treating Customers Fairly (TCF) really does translate into good outcomes.

“Wanted: a step change in treating customers”
We’ve been involved throughout the development of the Retail Distribution Review (RDR), for instance, to ensure a fairer deal for consumers, raised professional standards across the board and the removal of bias in the investment market. We support the aims of the FSA’s recent Mortgage Market Review to address weaknesses in that market.

We’re liaising with a variety of stakeholders about NESTs, the forthcoming auto-enrolled pensions. And we’re following closely the launch of the Consumer Financial Education Body (CFEB) as we have long promoted the need for generic financial advice.

Not surprisingly, banking is a top priority for us. We think it’s absurd that the FSA regulates retail banking as long as customers are in credit, but the moment they go overdrawn, the OFT takes over. That just causes confusion for customers. So we’d like to see the FSA regulate consumer credit in the significant firms where it has an ongoing supervisory relationship.

We’re challenging the FSA to deliver a real step change in the way customers are treated now that it has taken over from the Banking Code Standards Board (BCSB).

We were very disappointed by recent FSA research which points to extremely poor practice in complaints handling: this is an area where banks really must improve.

“We want banks to do what they say on the tin”
In other retail sectors, effective competition tends to lead to lower prices and truly innovative products. Loyal customers are rewarded. We question whether there really is sufficient competition in this market and why consumers don’t get a better deal. A good outcome from the RDR would be for banks to introduce simpler products to the mass market that really did do ‘what they say on the tin’ and offered value for money.
We’re agitating for effective redress in the Payment Protection Insurance market and are concerned this hasn’t been sorted out. The vexed issue of bank charges that, in our opinion, unfairly penalise the most vulnerable still has to be addressed. Effective compensation is also key. We’ve always lobbied for 100% compensation for savers, a point we believe was proved well-founded by the banking crisis. The queues outside Northern Rock dispersed only when savers were reassured they would get 100% of their savings back.

Our ideal is 100% compensation, but we continue to lobby at least for different brands to be covered by separate compensation. Consumers often don’t understand that very different sounding brands can be authorised under the same institution and so only qualify for one compensation limit.

“Talk in a language customers can understand”
Banks need to understand their customers more and to talk in a language that customers understand. The way banks remunerate their staff and operate sales incentives concerns us, as we feel customers’ interests are often downplayed. There needs to be greater transparency, so that costs and charges are easy to understand.

Risk needs to be explained properly and not hidden. Packaged current accounts and structured products may well have a place, but there needs to be more effective targeting so that the benefits and downsides can be understood.

Greater transparency and effective switching need to be addressed in the current ‘super-complaint’ into Cash ISAs. We’re also taking a keen interest in the application of the right of set-off and how banks deal with unauthorised payment transactions.

Sadly, peer self-regulation has not worked. That’s why the Panel pressed so hard for the FSA to take over directly the regulation of in-credit accounts from the BCSB and why we continue to lobby for the regulation of all banking products to be brought under the FSA’s control.

Intelligent regulation has to be the answer, where prudential regulation and effective supervision combine to deliver fairer outcomes for consumers. Left to their own devices, banks may not always put the needs of the consumers first and the pressure of competition tends to drag the best down to match the behaviour of the worst.

KAY BLAIR is Vice-chair of Financial Services Consumer Panel

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