Consumer Duty marks a mindset shift for financial institutions, with firms wanting to be perceived as looking after their customers rather than loan predators, says risk decision solution provider Provenir
The Duty sets out higher and clearer standards of consumer protection across financial services and requires firms to put their customers’ needs first.
Frode Berg, managing director for EMEA at Provenir, said: “With the new rules in place, lenders will need to change their standards of support and provide consumers with protection to promote good outcomes. This may result in lenders being more cautious and thorough in their assessment of applicants, which could potentially lead to stricter lending criteria. As a result, some individuals who may have previously qualified for credit may now face more difficulty in obtaining it.”
Conversely, Berg said it is also an opportunity for lenders to adopt advanced data and analytics technologies to enable them to better assess the creditworthiness and affordability of borrowers throughout their credit journey and build more personalised offerings and safeguards for consumers and businesses alike.
Berg said the new rules will also have a significant impact on lenders’ credit risk assessment processes. To comply with the new rules, lenders will need to have a more “holistic and accurate understanding” of applicants and customers. This will require them to gather more data and insights into borrowers’ financial situations, including their affordability and potential signs of distress.
Berg added: “The impact on borrowers is likely to be positive, especially in the long term. With the new rules in place, borrowers will have access to better and more tailored products. Lenders will be required to consider affordability and vulnerability when onboarding customers and throughout the customer journey. This means that borrowers will be better protected against potential downfalls, and lenders will have a greater responsibility to ensure that the products they offer are appropriate for each individual borrower’s circumstances.
“The new rules will require lenders to prioritise customer outcomes and put the interests of their customers first. This will mandate a shift in the lending industry towards a more customer-centric approach. Lenders will need to invest in technology and processes that allow them to comply with the regulations at a product level and meet the new standards of support. The availability of credit may be influenced by lenders’ ability to adapt and comply with the Consumer Duty requirements, potentially leading to changes in the types of products and services offered in the lending sector.”
