Warnings are being raised over a planned Treasury shake-up of financial services rules that could see households lose access to compensation due to weakened protections. The Labour Party government is introducing the Enhancing Financial Services Bill, which proposes updates to the Consumer Credit Act.
Impact on Vulnerable Customers
An impact assessment revealed that vulnerable customers could be excluded from receiving compensation when wronged. Under the proposed changes, the Bill removes the old rule that automatically enforces harsh, punitive sanctions for minor formatting or data-entry errors on a statement.
However, the rules will create higher barriers to redress and a weakened deterrent against poor practice, creating more scope for detriment among those least able to navigate complex processes, it has been warned. These groups are less likely to spot noncompliance, to know which route to pursue, or to persist through protracted complaints, increasing the likelihood that harms go unremedied, the assessment said.
Estimated Impact
The Bill estimates that against a 10-year backstop, the Financial Ombudsman Service's workload will drop by 27,900 cases per year. This could mean 3,000 consumers miss out on an estimated £600,000 in annual cash redress.
Reactions
Alex Neill, co-founder of Consumer Voice, said: Making redress harder to access risks tilting the balance further away from consumers and reducing pressure on firms to resolve complaints fairly in the first place. Economic growth cannot come at the expense of accountability. Ministers should be focused on strengthening confidence in the financial system, not weakening protections for consumers who already face the greatest barriers to being heard.
A spokesperson for banking industry body UK Finance said: UK Finance welcomes the government's plans to modernise the Consumer Credit Act. Updating these rules will remove outdated requirements and be beneficial for consumers as it will allow lenders to communicate with them in clearer, more tailored ways.
A Treasury spokesperson said: The Financial Services and Markets Bill will modernise how the sector is regulated, enable it to grow and to lend more to businesses, and make consumer protections fit for the digital age while strengthening protections for vulnerable consumers by improving clarity of information and maintaining access. It will do this while ensuring high standards of regulation and oversight across the system.
