By Hollie Mortlock from Willis Towers Watson
What is a consumer and what are their rights?
According to the FCA Handbook, a “consumer is any natural person who is acting for purposes which are outside his trade or profession. A commercial customer is a customer who is not a consumer1.” Currently, consumers have a number of ways of seeking redress in the event that firms appear not to meet up to their legal obligations and the regulatory requirements set by the FCA, such as the FCA Principles and the Senior Managers & Certification Regime (SM&CR). These are:
The Financial Ombudsman Scheme (FOS) – there are limits that apply with regards to compensation, depending on when the case is brought to the FOS - £355,000 for complaints referred to FOS on or after 1 April 2020 about acts or omissions by firms on or after 1 April 20192. Whilst FOS consider the law, as well as the rules, regulations and codes of practice in place at the time of the alleged misconduct, they also follow the rules set by the FCA.
Courts and legal system – breach of duty. Consumers also have protection under the Consumer Credit Act 1974 (CCA). The extent of a bank's duty in certain circumstances is currently subject to review, for example the recent decisions in the High Court as to the so called “Quincecare” Duty of care.
Breach of the Conduct of Business Rules under s138 of Financial Services and Markets Act 2000 (FSMA), which may afford consumers a cause of action in the case of breach of certain rules.
It is worth noting that in late 2020, the High Court took a view in a test case under s138d FSMA in the context of alleged breaches of statutory duty under the Consumer Credit Sourcebook (CONC) for failing to take into consideration repeat borrowings when making lending decisions. The court held that the financial service provider was in breach of CONC 5.2. The decision looked at a sample of 12 cases and in this instance, it was a group of claimants. There was no definitive position with regards to individual cases under s138d FSMA or the CCA, however financial service providers may be interested in the guidance provided by the court as to the merits of the arguments3.
The future
The FCA continue to focus on one of their main objectives of consumer protection. They commenced consultations and published discussion papers back in 20174 and 20185 on whether there was a need to introduce a new duty of care. In April 2019, they provided feedback in a statement6.
Whilst the FCA summarised that ‘most respondents consider that levels of harm to consumers are high and there needs to be change to better protect them’, some respondents argued that the current approach was working sufficiently or that any new initiatives need ‘time to be embedded’ before the need for change can be evaluated.
Now, here we are in 2021, and a private members bill, The Financial Services (Duty of Care) Bill is currently progressing through the House of Lords. The Bill proposes an amendment to FSMA and requires the FCA to introduce a duty of care within 6 months of the Bill being passed in to law. It remains to be seen whether the Bill will in fact pass into law and how the proposed new duty might be framed. The Bill may impact financial institutions in the future regarding their civil liability risks and will be dependent upon what position the FCA takes on this matter. The question remains, was a new duty even required, and if so, will it provide more or less legal certainty for financial service providers?
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