The Financial Services Consumer Panel (FSCP) latest report on consumer habits suggested firms are taking advantage of client inactivity.
Firms appear to compete vigorously, said the consumer watchdog, but they also strive to inhibit consumers’ ability to shop around, by developing complicated products, with obscure or misleading prices and terms and conditions.
'Financial services firms exploit their customers’ inertia and misplaced loyalty,’ said Sue Lewis (pictured), chair of the FSCP. ‘Simply telling people this and encouraging them to go elsewhere is not going to work for most consumers. Firms will only change their behaviour when they have an incentive to do so.'
‘Competition authorities need to analyse what works: what needs to happen for people to know they can switch to a better product or service? What remedies should be put in place to protect those who, perfectly rationally, do not want to switch? The fiction that consumers can and will drive competition has persisted too long. We need tough action now.’
The FSCP recommends four possible remedies:
- Competition authorities to take robust and effective action to tackle firms’ exploitation of consumers’ behavioural biases and over-complicated products and pricing.
- The FCA to be tough on firms that penalise their loyal and trusting customers.
- The FCA to develop robust measures of consumer outcomes, and require firms to make these widely available, and incorporate them in digital comparison tools.
- Competition authorities and regulators to act now to make sure the new generation of automated shopping around and switching services do not simply repeat the problems of the past and further weaken rather than strengthen consumers’ position in the financial services market.
The FSCP report comes hot on the heels of the landmark asset managers study by the Financial Conduct Authority last month, which concluded that fees for many funds were uncompetitive but stopped short of referring the industry to the competition authority.