One year on: Insights from a year of Consumer Duty in the mortgage sector

July 31st marks the first anniversary of the Consumer Duty regulations for open products, and the beginning of its application to closed products. As we reflect on this milestone, it's crucial to assess the impact these regulations have had on the mortgage industry, particularly in terms of supporting vulnerable clients.

Over the past year, significant changes have been introduced, including improved transparency, clearer communication, and a commitment to fairer treatment for all customers. However, research from Smart Money People indicates that 84% of consumers have not noticed any improvement in their treatment by financial providers since the FCA implemented these regulations. This suggests a gap between regulatory intentions and consumer experiences, highlighting areas where further progress is needed.

Assessing progress after one year

Over the past year, the mortgage industry has made considerable strides in aligning with the FCA Consumer Duty regulations. Lenders have enhanced their product governance, ensuring offerings align more closely with customer needs. Communication has been simplified, with more transparent and straightforward terms. Some firms have even revised their fee structures to ensure fairer value for customers.

This shift towards customer-centric policies represents a significant cultural change within the industry. Historically, brokers might have overlooked certain financial products, but the broader scope of Consumer Duty has altered this approach. This shift is not merely about regulatory compliance; it reflects a genuine commitment to serving customers more effectively.

This holistic approach not only meets regulatory expectations but also enhances the value proposition brokers offer to their clients. Brokers can now provide more comprehensive and valuable guidance, improving service quality across the board.

Enhancing support for vulnerable customers

A key objective of the Consumer Duty is to better support vulnerable customers. To this end, mortgage lenders have taken steps to improve communication and accessibility. Many have introduced resources like 'jargon buster' libraries, redesigned their websites for clarity, and added new contact options such as email and outbound calls. These initiatives help customers better understand their product options and make more informed choices.

In addition to improving communication, firms are redesigning customer journeys to highlight fees and charges upfront, preventing unexpected costs. Brokers have received training to provide specialised support for vulnerable customers, and firms are using data proactively to identify customers who may not be fully benefiting from their products. This enables brokers to offer better alternatives and ensure customers make well-informed decisions.

Lenders have also developed systems to more effectively capture and monitor customer vulnerabilities. By eliminating productivity targets for customer service staff dealing with vulnerable cases, there is a greater focus on providing personalised and empathetic support, ensuring that these customers' needs are met with care and attention.

Identifying areas for improvement

Despite these advancements, several areas still require attention. Many firms have not fully integrated Consumer Duty principles into their governance structures, often relegating these responsibilities to compliance teams without sufficient board-level involvement. Effective use of data to monitor and evaluate customer outcomes remains a challenge, underscoring the need for more robust data strategies.

Other pressing issues include addressing data gaps for closed products and ensuring fair value and customer engagement for legacy products. Firms must continually review and update their policies to meet current customer needs and regulatory standards, ensuring that terms and conditions do not lead to poor consumer outcomes.

Leveraging technology for better support

Technology adoption in mortgage lending can address many of the issues highlighted over the past year. Advanced data analytics provide real-time insights, keeping key decision-makers informed and ensuring that Consumer Duty principles are fully integrated into the firm's governance structure.

Predictive analytics and machine learning tools can help firms monitor customer outcomes more effectively by analysing behavior to identify trends and potential issues early. This proactive approach ensures consistent monitoring and evaluation, meeting Consumer Duty requirements.

Technology also facilitates greater collaboration at key customer touchpoints, including brokers, lenders, and conveyancers. For instance, broker ID tools can perform comprehensive digital checks, ensuring quick broker verification and selection, which enhances compliance and customer service.

While there have been significant improvements in communication and product design, many firms still struggle with effectively leveraging data. Utilising API-integrated services can simplify this process, allowing brokers to access and quote multiple products through a single platform. This ensures a smooth, comprehensive service tailored to customer needs with minimal additional effort.

Reflecting on the past year, it's clear that while substantial progress has been made in supporting vulnerable mortgage customers, there are still gaps to be addressed. Embracing the latest technology will be crucial in updating legacy systems and ensuring services are always available to those who need them most. To truly make a difference, this technological evolution must be prioritised.