The spotlight is currently on motor finance firms in the wake of the Financial Conduct Authority’s (FCA) comprehensive Motor Finance Review. On one side, firms believe they have acted fairly with regulation by providing interest rates that were compliant before the ban of DCAs. On the other side, customers feel they have been treated unfairly and were charged high interest rates that are now deemed unsuitable.
The influx of customer complaints and FCA's intervention was precipitated by a growing number of customer complaints in regards to this situation, casting a shadow over the industry’s commitment to customer understanding. This unfolding scenario begs a pressing question: Could effective customer support and centricity from the very beginning have averted these complaints, avoiding FCA intervention entirely?
With customer understanding as a key pillar of Consumer Duty, it is very possible that the implementation of its guidelines could have potentially precluded the FCA's involvement. This article dives into the heart of this question, exploring the value of Consumer Duty’s customer-centric guidelines in context with the formal complaints of the Motor Finance Review.
The consequences of insufficient customer support for motor finance firms
Regardless of compliance or legal ruling, the FCA’s Motor Finance Review has shone a light on the poor level of customer support present between motor finance firms and customers. In this specific case, there was a clear lack of customer communications, inadequate responses to initial complaints and a failure to perform due diligence into customers’ financial situations. As a result, customers had a lack of understanding when it came to loan interest rates and regulation changes, leading to confusion that eventually led to complaints.
As a result of these issues, the Financial Ombudsman Service ruled in favour of customers in two notable cases, which, with the involvement of the FCA, has had serious implications for the implicated firms. These firms now face reputational damage as well as a decrease in customer retention, attributed to a diminishing sense of loyalty among their customer base.
The difference of a consumer-centric approach
The principles of consumer-centric practices, particularly within financial services, hinge on transparency, fairness and clear communication. Had these principles been the guiding force for motor finance firms from the get go, many of the challenges faced by customers could have been resolved early on. By clearly communicating with customers and helping them understand the intricacies of loan interest rates, they would have been better informed to make educated decisions surrounding their situation. Not only would this have avoided complaints, but would have helped bolster customer relationships through effective support and guidance.
Using Consumer Duty as a blueprint for effective customer support
When it comes to customer centricity, the FCA’s Consumer Duty guidelines acts as a perfect blueprint for firms to follow. Consumer understanding and support is one of its key pillars, outlining the steps firms need to take to provide beneficial outcomes for their customers. As the FCA themselves state in the guidelines, “Consumers can only be expected to take responsibility where firms’ communications enable them to understand their products and services, their features and risks, and the implications of any decisions they must make."
The Duty outlines that customers should be given the information they need, at the right time and in a way they can understand. This aligns with the principles of customer centricity, and highlights how motor finance firms can help customers reach beneficial outcomes by providing supportive information surrounding loan interest rates. After all, avoiding situations like the Motor Finance Review is the reason for the Duty’s implementation in the first place.
Empowering future success through enhanced customer support
The lessons gleaned from the Motor Finance Review highlight the indispensable value of implementing proactive, customer-centric support strategies. Such approaches are not just about mitigating complaints but about fostering strong, trusting relationships that benefit both customers and firms in the long term. By providing these strategies from the get go, motor finance firms could have avoided the FCA’s review altogether by focusing on customer understanding and support.
Stay tuned for our next article where we will delve deeper into actionable strategies for firms committed to elevating their customer support and engagement practices.
