Consumer advocates warn of danger to growth from further erosion of trust in financial firms

Three debt and consumer advisors have warned lawmakers that removing regulations for financial firms in an effort to boost UK economic growth could backfire if it increased consumersʼ lack of trust in the sector.

Rocio Concha, director of policy and advocacy and chief economist at Which?, said the consumer organisation fully supported the government’s focus on growth, which benefited “everyone including consumers”.

“But we don’t think there should be a trade-off between consumer protection and growth,” she added. “When you have the right protections in place, consumers have the trust to try products and services.”

Which? was concerned that some parts of the financial industry were taking advantage of the government’s drive for growth to push for a reduction in consumer protections.

Concha was giving evidence at a hearing of the House of Lords Financial Services Regulation Committee’s enquiry into the secondary objective for international competitiveness and growth given to the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) in 2023. She was joined by Peter Tutton, head of policy and research at debt advisory charity StepChange, and Chris Pond, chair of the Financial Inclusion Commission.

Pond said growth had to be inclusive, while Tutton said the secondary objective should not be used to weaken the FCA’s primary objective for consumer protection. “Financial services has a mixed record for serving this group of more financially vulnerable consumers,” he added, while growth of innovation “has often meant very bad outcomes for consumers and hasn’t been focused properly on consumer needs”.

Realism injected

The government and the FCA are considering measures that would encourage individuals to shift cash savings into investments. Pond said while this was sensible objective for people with sufficient savings and appropriate advice, “a very large proportion” of people in the UK “have too little savings to absorb any investment losses”: one in five had no savings, and one in four had no insurance protection.

Tutton said there were steps that government departments and regulators could take to better aligned, which could improve economic growth. “The debt solutions market is a fragmented regulatory environment and there is a lot of bad practice,” he added.

He revealed that half of all those seeking assistance from StepChange had developed mental health problems, which the charity’s research had calculated had cost the UK economy £8 billion.  

Citing the collaborative work previously done between the Department for Work and Pensions (DWP), FCA and The Pensions Regulator (TPR) on annual pensions statements sent to consumers, Tutton said statutory wording required in debt communications should be reviewed.

“There is a lot of evidence about how you produce and send information out makes a big difference on engagement. We did some work recently on creditor collection letters that showed that if you changed the format, including on the statutory protections, [people] engage more,” he explained.

APP reimbursement

Lord Smith of Kelvin said the committee had been told by financial industry representatives giving evidence to its enquiry that firms were being forced to take on too much responsibility for decisions made by their customers.

Banks have been required to automatically reimburse victims of push payment (APP) fraud since October 7, 2024.

Committee chair Lord Forsyth of Drumlean said two banks had told the committee that they had been required to reimburse customers who had ignored fraud warnings given by the bank before they transferred funds.  According to trade association UK Financeʼs 2024 Fraud Report, 78% of all APP fraud originates online and a further 16% via telecommunications.

Automatic reimbursement had removed consumer responsibility, said Pond, who is a former chair of the banking industry’s Lending Standards Board (LSB).

Concha said that mandatory reimbursement had given the banks the right incentives to tackle APP fraud but others should be involved in reimbursement. Currently, social media, internet and telecommunications firms are not required to contribute toward the cost of reimbursing individuals who have fallen victim to APP fraud.

The Online Safety Act, currently being implemented by Ofcom, will introduce financial penalties for tech firms that fail to prevent fraudulent content appearing on their platforms. Form March 17, tech firms will be required to take steps to mitigate fraud appearing on their sites, and remove such content that does appear. Failure to do so could result in a fine of £18 million or 10% of global revenue (which ever is the higher).

UPDATE: This article was updated at 18:05 on January 20, 2025 at paragraph 14 to clarify that Lord Forsyth was referring to customers who had ignored fraud warnings.