Two-thirds of lenders admit they’re yet to fully review the new Consumer Duty regulations
With less than two months to go before the new Consumer Duty deadline, two-thirds (65%) of UK lenders admit they are yet to fully review the regulation requirements, according to new research from AI powered transaction analytics firm, Fuse.
The FCA’s new Consumer Duty will come into force at the end of July 2023. It requires firms to not only act to deliver good customer outcomes, but to understand and evidence whether those outcomes are being met, as well as ensure fair outcomes for vulnerable customers. It’s widely accepted as a positive move in improving consumer protections, with more than three-quarters (77%) of lenders believing that the new rules are the first step in a long journey to improving borrower outcomes.
However, there is concern around how prepared the industry is for the incoming rules, with more than half (55%) of lenders admitting to not being ready, and 61% needing to turn to external expertise.
The heightened focus on improving consumer outcomes comes at a vital time given the growing consumer reliance on credit – nearly three-fifths (58%) of UK adults have used a credit product in the last year, and more worryingly, a fifth of consumers (21%) are relying on credit and loans to pay for everyday expenses.
However, 72% of lenders believe that the regulatory change has come at a financially challenging time for their business and, despite the increasing need for credit, more than a fifth (22%) of lenders say the cost of living crisis has already reduced the number of loans provided.
Sho Sugihara, CEO and co-founder of Fuse, comments: “Lenders are under huge pressure to bring in the much-needed changes the Consumer Duty demands but, less than two months out, it appears the vast majority are unprepared.
“Lenders need more support ahead of the Consumer Duty deadline. With the cost of living crisis contributing to a growing consumer reliance on credit, they are performing a critically important role in supporting millions struggling with rising costs.
“In the long-term, the Consumer Duty needs to kickstart a transformation across finance to ensure it becomes more personalised and outcomes-driven for borrowers. In order to build a more effective and fairer financial system, lenders should supplement traditional affordability criteria with a more holistic view on whether a product will provide a consumer with good outcomes.”
Fuse recently launched a new product, Health Signals, to help risk and compliance teams to measure vulnerability, predict arrears risk, and monitor the impact of financial products on their customers.
Health Signals automates vulnerability monitoring by analysing customer transaction data (via Open Banking or existing transaction data) and provides institutions with the insights needed to proactively monitor, report, and predict vulnerability. This approach empowers firms to ensure better treatment of vulnerable customers and provide rapid support to those at risk of falling into arrears.
The Health Signals platform is highly-scalable, easily integrated with an organisation’s current systems. The algorithms have been trained on over 400 million proprietary data points collected specifically for retail lending, including transactions, lending decisions, and credit reports.