Tuesday's FCA Vanquis fine is interesting for a number of reasons beyond the obvious. One is that it conceals a persistent question - does disclosure work? - that has dogged the regulator since at least the late '90s. The implicit premise of the FCA's statement is that if Vanquis had explained its product fully all would be right, but the evidence for this is far from strong and, particularly with interest rates at last looking set on an upward path, it may be time for firms to make their own product judgements.
As context for this, it's worth bearing in mind four factors:
1. The relatively low financial capability of the UK population (in common with many others I suspect) - see the FSA's landmark 2006 survey (sadly never repeated).
2. The increasing complexity and opaqueness of financial products - a source of regulatory concerns since at least precipice bonds in the early 2000s.
3. The perils of the search for yield in a low interest rate environment - one of the causes of the crisis, and most spectacularly seen in the fallout from the failure of structured deposits guaranteed by Lehman's.
4. The significant real terms fall in household income since the financial crisis.
I've argued before that the buyer beware philosophy, still prevalent across financial services and its regulation, is out of date; and that firms, in their own interests, should take greater responsibility for meeting customers' needs. The Vanquis story adds to this argument - given the above context, there is room to be sceptical about how much difference to consumers a fuller disclosure by Vanquis' sales staff would have made.
This is not to say the fine is wrong - Vanquis' breach is clear enough, and explaining a product properly should be second nature in any industry. But there is a bigger problem to be fixed, not least as Vanquis' Real Options Plan seems, on the face of it, well-aligned to what the FCA is looking for in its new credit card rules.
For the FCA this is an old problem, but for firms the issue may soon become more acute.
If interest rates start to rise as predicted, it may well expose a number of instances where customers are effectively ignorant of the implications of some of the financial products they have bought in easier times. So if they haven't done so already, it's worth firms looking carefully at their suite of products to see if any have a sting in the tail for customers.
Most Vanquis customers chose the ROP to help manage their credit without realising instead that the product might lead to their indebtedness increasing. Customers are entitled to be told all relevant information when being offered financial products.