The Financial Conduct Authority (FCA) has warned banks that they must inform savers if better deals are available once the new Consumer Duty comes into force at the end of the month.
In a letter to the Treasury Select Committee, the FCA said it is “more critical than ever that borrowers and savers are offered fair and competitive rates”.
Ahead of the introduction of the Consumer Duty, which comes into force on July 31, the financial watchdog said it expects lenders to ensure customers are “informed of available rates across their product set and how they may benefit from switching”.
The Consumer Duty will introduce a new ‘consumer principle’, which requires firms to deliver “good outcomes for retail customers”, shifting more responsibility onto firms.
It means individual firms must assure the FCA that there is a “reasonable relationship” between the price consumers pay and the benefit they receive.
“If firms find that their products do not meet the needs of customers or deliver fair value, we expect them to take remedial action,” the FCA said.
High street lenders have come under intense scrutiny over the past few months from legislators and regulators for the “measly” interest rates offered on easy access savings accounts.
The big four banks currently offer easy access savings rates between 0.9 and 1.75 per cent while the Bank of England’s base rate stands at five per cent. However, the banks point out that a range of products are available which offer much higher rates, particularly fixed-term products.
In a meeting earlier this month the FCA suggested banks should be more proactive in directing customers towards better deals. However, the banks argued that data protection rules prevented them from doing so.
The FCA highlighted that it is “working closely” with the Information Commissioner’s Office to clarify any outstanding issues.
Harriett Baldwin MP, chair of the Treasury Committee, said: “If the high street banks continue to pay poor savings rates on their instant access accounts, they should make sure their customers know that better rates are available.
“Given that the government, regulator and Governor of the Bank of England agree with the committee that action is required, the time for weak excuses is over,” she continued.
All the banks insisted they were well prepared for the introduction of Consumer Duty and drew attention to some of the changes that had been made already.
In particular, all the banks highlighted that they were committed to clear and fair engagement with customers to inform them of the products available.
Lloyds said it had launched a “substantial new customer engagement plan” earlier this year while HSBC said it will deliver a “new approach” to customer interaction through better digital self-service models and educational materials.
HSBC also said it had adjusted its approach to pricing to allow it to respond to the rapidly rising base rate environment.
More broadly the lenders argued that the core principles of the Consumer Duty had been included in their operations for years.
Barclays said it had embedded “the principles of simplicity, fairness and value into our product range and pricing before the duty was formalised into regulation” and had re-assessed all its products in preparation for the duty.
Similarly, Natwest said “our purpose-led strategy aligns with the goals of Consumer Duty, and we have already for some time been working on building the financial resilience of our customers and supporting the community”.