The UK's car finance sector is undergoing significant changes, particularly in light of the Financial Conduct Authority's (FCA) Consumer Duty and recent legal rulings. These developments aim to enhance transparency and fairness for consumers, but they also introduce complexities that both providers and customers must navigate.
What Is the Consumer Duty?
The Consumer Duty, introduced by the FCA, sets higher standards of consumer protection across financial services. It requires firms to act in the best interests of retail customers, ensuring that products and services deliver good outcomes. This includes providing clear information, fair pricing, and effective support throughout the customer journey.
Recent Legal Rulings Impacting Car Finance In October 2024, a landmark Court of Appeal ruling deemed it unlawful for car dealers to receive undisclosed commissions from finance providers without obtaining the customer's informed consent. This decision has significant implications for the industry, potentially leading to compensation claims estimated at up to £30 billion.
Implications for Consumers
Customers who entered into a car finance agreement before January 28, 2021—particularly through mechanisms like Personal Contract Purchase (PCP) or Hire Purchase (HP) - are being informed they might have been affected by undisclosed commission arrangements. The FCA has extended the deadline for lenders to respond to complaints until December 4, 2025, to manage the expected surge in claims.
Enhancing Compliance and Customer Engagement with Personalised Video Solutions
The Financial Conduct Authority's (FCA) Consumer Duty underscores the necessity for firms to provide transparent, accessible information to consumers. Personalised video content has emerged as a powerful tool to meet these requirements effectively.
The Power of Personalised Video in Financial Services
Personalised videos transform complex financial information into engaging, easily digestible content tailored to individual customers. This approach not only enhances understanding but also builds trust and fosters stronger customer relationships.
✅ Simplify Complex Information: Breaking down intricate financial products into clear, concise explanations helps customers make informed decisions. ✅ Demonstrate Transparency: Providing personalised content shows a commitment to openness, aligning with regulatory expectations. ✅ Enhance Engagement: Tailored content resonates more with customers, leading to higher engagement rates compared to traditional communication methods.
Kernel Content Studios: Your Partner in Compliance and Engagement Content
At Kernel Content Studios, we specialise in creating high-quality, cost-effective personalised video content using generative AI. Our solutions are designed to help financial institutions:
Meet Compliance Requirements: Our videos are crafted to align with regulatory standards, ensuring your communications are both effective and compliant.
Improve Customer Experience: By delivering information in a personalised, engaging format, we help enhance customer satisfaction and loyalty.
Achieve Cost Efficiency: Leveraging AI-driven production reduces costs and turnaround times, allowing for scalable and timely communication strategies.
Success Stories
Our collaboration with Honda Financial Services is a testament to the impact of personalised video content. We developed a personalised onboarding welcome video that explains the key elements of a customer's credit agreement through a simple visual narrative. This approach not only improved customer understanding but also enhanced the overall onboarding experience.
Consumers are being asked to consider the following:
Eligibility for Compensation: Have you financed a vehicle before January 28, 2021, may be eligible for compensation due to mis-sold finance agreements. (The Scottish Sun)
Next Steps: To claim compensation, consumers should verify if they are affected, especially those who took out agreements before January 2021. Those impacted can either contact their lender directly or seek assistance from legal specialists.
Potential Compensation Amounts: The FCA estimates that hidden finance commissions could have resulted in an additional £1,100 in interest charges on a typical £10,000 agreement. (The Sun)
Further context: A Brief Guide to The Consumer Duty
What is The Consumer Duty?
All employees in the Financial Services sector must now be aware of the FCA’s updated standards for consumer protection - known as “The Consumer Duty” - and how to comply with its regulations.
The Consumer Duty is a regulatory framework that establishes the level of care that businesses in retail financial markets should provide to clients. It's designed to help maintain consumer confidence in financial products and services, by helping them understand their financial credit agreement in plain language, and then decide whether or not to enter into the agreement.
The Consumer Duty is being introduced by the FCA to improve the way financial services firms communicate with consumers and will apply to all businesses that offer financial products and services to consumers.
What is the purpose of The Consumer Duty?
The Consumer Duty is being introduced to improve the way in which financial services firms communicate with consumers. The regulation will help to ensure that consumers are provided with clear and concise information about their financial credit agreement, in order to make an informed decision about whether to enter into the agreement.
The Consumer Duty will also help to ensure that financial services firms take account of the needs of consumers when designing and delivering their financial products and services.
What are the requirements of The Consumer Duty?
Under The Consumer Duty, financial services firms must take account of the needs of consumers when designing and delivering their financial products and services. In addition, financial services firms must provide consumers with clear and concise information about their financial credit agreement, in order to help them make an informed decision about whether to enter into the agreement.
The information that must be provided to consumers includes: |
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How will The Consumer Duty be enforced?
The FCA will have the power to impose financial penalties on financial services firms that breach the consumer duty. In addition, the FCA will have the power to issue directions to financial services firms that breach the consumer duty, in order to require the firm to take steps to comply with the regulation.
Who will The Consumer Duty apply to?
The consumer duty will apply to all financial services firms that offer financial products and services to consumers.
What are the elements that make up The Consumer Duty?
The Consumer Duty consists of the following elements:
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Kernel Content Studios works with financial services businesses to deliver personalised video content and explainers that focus on the Consumer Understanding outcome.