New regulations from the Financial Conduct Authority (FCA) are set to take effect on 31 July. These new rules are meant to ensure that financial firms provide “good outcomes” for customers, but some are worried about potential negative outcomes for the market.
For example, online-only savings accounts offered by major banks might face extinction, and popular 0% interest credit card deals could be in jeopardy as well.
The new regulatory framework, known as the "consumer duty," is being introduced by the Financial Conduct Authority (FCA) with the aim of ensuring that financial firms prioritize delivering positive outcomes for customers and prevent foreseeable harm. This encompasses fair pricing for all customers, addressing excessive charges, and facilitating easier cancellation or switching of products.
While some skeptics doubt the impact of this new regime, financial institutions are already taking steps to comply with the stricter rules. For instance, Santander recently rebranded its online savings accounts, previously accessible only via digital means, to Easy Access Saver and Easy Access Isa, allowing customers to administer them through various channels, including branches and telephone services.
To some extent, banks are left to interpret the rules for themselves, deciding what does or doesn't result in a "good outcome" for a customer. Some are taking the view that limiting account access exclusively to online channels may not qualify as a "good outcome" for customers, especially when alternative options like bank branches and call centers exist. As a result, some banks are doing away with online-only bank accounts, but this could ultimately result in higher costs or lower interest rates for customers if there's more demand on branches and telephone services, a potentially worse outcome in another way.
The new regulations could also spell trouble for credit cards offering interest-free deals on balance transfers and purchases. While these deals have been popular and beneficial for many, they rely on revenue generated from customers who fail to pay off the balance or miss payments. The FCA firmly asserts that firms should not depend on profits derived from unfavorable customer outcomes, posing a significant challenge for products like 0% credit cards with no fees.
James Daley, the Managing Director of Fairer Finance, a consumer group and ratings provider, says, "For some products, like 0% credit cards with no fees, these new rules pose an existential challenge." He notes that lenders are aware that some customers taking advantage of these credit card deals will ultimately miss payments or fail to pay off balances at the end of the promotional period. If the banks can predict which customers these will be, that certainly will go against the new customer duty. In addition, punishing customers who miss a payment by stripping them of their 0% deal may also not meet the new customer duty requirements.
As a result, it may be that banks pull these 0% offers, at least in their current state.