Consumer understanding is one of the four outcomes which, along with the cross-cutting rules and the Consumer Principle, forms part of the structure of the FCA's proposed Consumer Duty. As well as ensuring that firms' communications enable consumers to make informed choices about financial products and services, the FCA's aim is for consumers to be given the information at the right time and set out in a way that they can understand and digest. This is essential to delivering good outcomes to consumers.
Tone and language can be key to consumer understanding and engagement and delivering good outcomes. This was recognised by the FCA in its review of the retained provisions of the Consumer Credit Act 1974 (CCA) on which it submitted its final report (CCA Report) to the Treasury in March 2019, and was also reflected in the more recent introduction of the Consumer Credit (Enforcement, Default and Termination Notices) (Coronavirus) (Amendment) Regulations 2020 (CCA Notices Amendments Regulations).
The FCA's final report on the retained provisions of the CCA
In the CCA Report the FCA made a number of high-level suggestions for improving the tone and language of CCA notices, including default notices. These suggestions included removing the technical legal language (for example, citing the CCA section under which the notice is served), simple information requirements rather than prescribed wording, and reviewing any retained prescribed wording so it is more easily understood and encourages consumer engagement. Stakeholders called out the aggressive tone of some of the prescribed wording and a mental health charity commented that notices which are long, complex or threatening can make it more difficult for customers, particularly those who are in financial difficulty or who are otherwise potentially vulnerable, to engage. Without customer understanding and engagement delivering good outcomes (as required by the new Consumer Duty) in these situations is difficult at best. Consumer harm, where the customer has reacted negatively to the tone or language of a notice, is a real risk.
The CCA Notices Amendments Regulations
After the CCA Report and in response to the financial and mental health impacts of the pandemic, the Government introduced the CCA Notices Amendments Regulations. The stated aim of those regulations was to make letters that borrowers receive from their lenders when they are seriously behind on repayments "easier to understand and less intimidating". Tone and language again in the spotlight.
The changes implemented by the CCA Notices Amendments Regulations were aimed at reducing the negative impact of CCA notices on borrowers' mental health and enabling borrowers to take control of their finances by making the notices easier to understand and to access appropriate support. The need for a change to the tone and language was acknowledged and actioned. Block capitals, found to be intimidating and potentially detrimental to consumer wellbeing, were banned from being used to give text prominence, technical legal language which was difficult for borrowers to understand was removed and explanatory text was provided to explain legal terms such as surety, and the wording and ordering of the notices were changed to improve consumer understanding.
But although the tone and language was tweaked, none of the FCA suggested changes in the CCA Report was implemented; the changes were largely quick fixes rather than fundamental changes. This was likely because the Government wanted lenders to be able to make the changes swiftly so consumers impacted by the effects of the pandemic could benefit from the changes quickly.
Delivering good outcomes and the CCA information requirements
There is a recognised tension between the FCA's Consumer Duty proposals and the requirements of the CCA. In relation to the consumer understanding outcome element of the new Consumer Duty the FCA has put forward proposals for firms to communicate in a way which is accessible by consumers and that enables consumers to make informed decisions. It will be interesting to see what changes are made to ensure firms can comply with the (currently) prescriptive CCA information requirements and the need to be able to communicate in a consumer-friendly way that also delivers the consumer understanding outcome. CCA information requirements need to enable firms to deliver good outcomes.
It is hoped that the new Consumer Duty proposals could be the driver for moving forward the FCA's review of the retained provisions of the CCA. A wholesale review of the CCA information requirements to modernise the tone and language would be beneficial to consumers and firms alike. A transfer of the CCA requirements to the FCA rules – not as a straight 'lift and shift' exercise – and taking more of a principles-based, outcomes focused approach to the CCA’s information requirements in some areas could be a real opportunity to take a detailed look at the requirements and consider carefully what information consumers need and how it is best communicated to them at different stages in the customer journey. In line with the new Consumer Duty, the encouragement of customer engagement and informed consumer decision making should be the aims of such a review.
Next steps
The FCA's Consultation of the Consumer Duty is open for comments until 15 February 2022. We highlighted key points about the new Consumer Duty here. For firms and other interested parties keenly seeking a review of the retained CCA provisions this could possibly be the opportunity to push an open door.
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