The Consumer Duty one year on - Responsible Finance

The Financial Conduct Authority’s (FCA) Consumer Duty was a fundamental shift in regulation when it came into force in 2023. The Duty requires firms to put their customers’ needs first and drive meaningful change. It is like the financial services industry opening a window to let in fresh air.

Under the Duty firms must make an annual assessment for their Board of whether they are delivering good consumer outcomes. Responsible Finance reviewed a selection of its members’ Board reports following the Duty’s first year and we are sharing what we learnt. We hope this review not only showcases best practices but encourages more mainstream banks to partner with CDFIs to unlock large scale improvements to customer outcomes.

The Consumer Duty requires firms to actively monitor consumer outcomes and use these insights to take action to prevent foreseeable harm. This prompts firms to align their products with ever-changing customer needs.

CDFIs exist to serve people excluded from mainstream financial services and foster financial resilience. They are deeply invested in positive customer outcomes spanning the Consumer Duty’s outcome areas. They have strong governance processes in place to oversee their ongoing compliance with the Consumer Duty, with regular – monthly or quarterly – monitoring to protect against foreseeable harm and inform strategies to further improve outcomes. And innovation under the Duty is thriving.

The four outcome areas of the Duty are:

Products and services, ensuring products and services meet the needs, characteristics and objectives of intended customer groups.
Price and value, ensuring products give customers fair value.
Customer understanding, ensuring customers have clear, timely and accessible information.
Customer support, ensuring customers have accessible and adequate support.

We have highlighted some of the significant areas from CDFIs’ Consumer Duty Board reports which stood out under three broad themes:

A culture of continual improvement and innovation
Ongoing data-driven outcomes monitoring
Meaningful support when credit isn’t the answer

A culture of continual improvement and innovation

CDFIs’ target market means their customers often face challenges such as low incomes and vulnerability. In the first year of the Consumer Duty, CDFIs excelled in introducing product and service innovations to further tailor them for the unique needs of their target market and ensure they are providing excellent value.

Examples of initiatives included:

Increasing flexibility: The lower income and more vulnerable customers CDFIs serve often have less predictable income and expenditure, and weekly rather than monthly budgeting and pay cycles. To reflect this, CDFIs developed new products allowing them to support customers paid weekly or fortnightly. They also introduced innovative ‘Variable Recurring Payments’ which enable customers to repay their loans more flexibly and enable last minute payment adjustments.
Improving forbearance: CDFIs have enabled their customers to proactively set up short-term payment holidays in their online loan accounts, removing friction associated with needing to phone the CDFI to arrange this. This gives customers agency and dignity.
Unlocking financial learning: With continued pressures from the cost of living, financial education is essential. One CDFI has created a financial education app for customers which rewards learners with high street vouchers, incentivising positive financial behaviour.
Digital help: For customers needing extra help with technology, one CDFI has set up a new team with support from NatWest Group and Responsible Finance’s grant programme. This includes in person ‘digital help days’ to re-engage customers who prefer face-to-face interactions.
Deep understanding of different customer types: With the current economic climate, many customers need tailored support and forbearance to manage their finances, particularly those who are vulnerable. This is supported by a thorough understanding of a firms’ target customer market. CDFIs undertake deep analysis of their customers and target market, and how best to reach them, including customer personas which enable them to identify how to provide the best outcomes. One CDFI held a ‘Customer First Day’ to ensure colleagues across the business gained a deeper understanding of their customers and the challenges they face.
Focusing on culture: CDFIs seek to ensure the culture in their firm aligns with delivering good customer outcomes, alongside giving responsibility for embedding the essence of the Duty and its monitoring on their Consumer Duty Champions. One CDFI has actively committed to fostering a “speak up” culture, where employees can raise issues and learn from feedback to continuously improve outcomes, alongside a commitment to positive modelling from management teams.
Helping customers to maximise their incomes: CDFIs pioneered the adoption of automated benefits checkers into loan application processes, and continue to uncover millions of pounds each year in unclaimed benefits. This has now been adopted more widely across the financial services sector.
Continuous improvements: CDFIs regularly make system, technology and correspondence enhancements to remove customer journey barriers, improve clarity, and ensure communications are accessible. One CDFI has committed to ensuring each customer touchpoint contributes positively to their financial health or peace of mind. Another is creating infographics and video blogs to increase customer understanding of its products, and has implemented a tool to its website to allow users to view each page in the way they need, for example increasing font size and reading content out loud.

In addition, CDFIs have been pioneering Open Banking for more accurate affordability assessments for a number of years, which increases access to affordable credit by reducing reliance on credit scores. In 2023 CDFI Salad Money won the ‘Open Banking for Good’ award at the Open Banking Expo awards.

Ongoing data-driven outcomes monitoring

The reports Responsible Finance reviewed showed the use of good quality qualitative and quantitative data and monitoring to ensure customer outcomes are aligned with the Consumer Duty. Examples of areas monitored, and being developed to monitor, include:

Customer interaction: monitoring inbound calls and unanswered calls, to analyse the reason for calls and seek to reduce levels of unanswered calls. Written notes evidencing customer interactions and an audit trail for call stages of a customer’s journey. Customers requesting additional support, to make sure they have all the information at the right time to make the best decisions.
Online Trust Pilot reviews and social media interactions: to hear directly from customers what is, and isn’t, working, and act where necessary.
Customer surveys: satisfaction surveys to monitor customer views on areas such as communication, clarity and supportiveness.
Declines: to monitor the volume of declined customers and uptake of support offered.
Customers in financial difficulty: to ensure there is sufficient support for customers in arrears, payment holidays, and those who get in touch for support.
Vulnerable customers: staff at CDFIs undergo ongoing training on how to identify signs of potential vulnerability. Discreetly flagging vulnerability indictors enables CDFIs to track and improve the percentage of vulnerable customers receiving tailored assistance.
Complaint resolution: CDFIs maintain a history of very low complaints. Complaints are monitored to enable analysis and implement changes to products and processes where necessary.

The information gathered is used by CDFIs’ management and Board to understand areas where they are performing well, and identify areas and strategies to remedy poorer outcomes.

Meaningful support when affordable credit isn’t the answer

Access to unaffordable credit can be extremely harmful. CDFIs work to ensure consumers have access to credit where it is affordable and appropriate for them, and where it’s not appropriate, that they’re supported in other, meaningful ways.

The Consumer Duty guidance expects firms to provide other forms of support to those who they decline for credit. If this is done ineffectively and consumers aren’t aware of possible alternatives, it can increase their risk of them turning to illegal lenders[1].

In a 2024 letter to firms, the FCA suggested offering generic signposting to third party information sites, such as Money Helper. Whilst a useful resource, with tools such as benefits checkers, recently Money Helper’s landing page was directing users to a ‘savings calculator’—a useful tool, but not necessarily relevant for someone facing an urgent financial crisis. A single mother who has missed work due to sickness and been declined for credit, unsure of how she’s going to cover this month’s electricity bill, may not benefit from this kind of ‘catch-all’ help, leading to poor outcomes.

The following initiatives by CDFIs aim to provide their declined customers with better clarity and tangible action:

Going beyond generic signposting: One CDFI has developed a Money Toolkit to enable declined customers to find tailored support including grants, local food banks, and help with utility bills. The tool won the FCA’s “Eureka Prize” for the most original tech adaptation at its Financial Inclusion Tech Sprint.
Empowering declined customers with knowledge: One CDFI has developed a tool that allows declined customers to sign up to share their Open Banking data to give them spending insights, highlighting what impacts their eligibility and affordability. It also prompts them to claim outstanding benefits and enables them to check if they have any CCJs.
Improving awareness of the dangers of using loan sharks: Responsible Finance and its members work with the Illegal Moneylending Team (Stop Loan Sharks), which works to raise awareness of the dangers of illegal lenders, provide support where consumers may have fallen prey to a scheme, and improve awareness of CDFIs as a potential alternative.
Hardship grants in partnership with NatWest Group and Responsible Finance: To give declined customers a lifeline, helping them to feed their children, replace appliances and carry on getting to work.
No-interest loans, for those who can afford to borrow without interest: CDFIs have collaborated with Fair4All Finance on its Government-backed No Interest Loan Scheme (NILS), and in 2024 made 8,500 interest free loans to consumers who could afford to borrow at zero interest.
Declined customer surveys: One CDFI conducts post-decline surveys to generate better understanding of the experience of declined customers, with voucher incentives for completion.

Next steps

Looking ahead, CDFIs are set to embrace even more technological innovations, further enhancing customer outcomes. Their ambitions are inspiring, and we look forward to seeing their continued progress.

However, meaningful improvements for consumers extend beyond individual firms. Over the next year, Responsible Finance is committed to advancing industry-wide change—particularly by fostering stronger partnerships with banks to increase awareness of CDFIs. When applicants are rejected without clear explanations or alternatives, it’s like shutting the door on them in a time of need. Partnering with CDFIs can open that door, offering tangible solutions.

We would welcome you getting in touch to discuss what partnering with CDFIs could look like for your organisation.

Notes

CDFI Salad Money has recently released a report by the University of Edinburgh on Developing Standardised Measures for Consumer Duty Compliance, Affordability and Competitiveness in Consumer Lending, which is available here.

You can read more about Moneyline’s Money Toolkit, which won the FCA’s “Eureka” prize, here.

You can read about Responsible Finance and NatWest Group’s hardship grant and development grant programmes on our website.

[1] FCA Strategy for Consumer Lending, March 2024