I spend a lot more of my time than I should clicking through online customer sales journeys, partly with my consumer finance lawyer hat on looking at innovative ways of providing information online and partly because I, like most of us this year, have become very good at spending money online.  When clicking through a sales journey on my phone, I will often get a prompt that I haven't correctly ticked a box or that I haven't filled in information correctly.  I am always horrified when clients give me the stats on how few consumers actually read our carefully crafted terms and conditions, but then think nothing of merrily clicking accept without reading myself.  

Does this speed and ease of journey make me less responsible for my purchasing decisions? I would argue not, but I have the benefit of understanding my rights as a consumer.  

The question of how far lenders should go in explaining credit propositions to customers has reared its head again with the FCA's consultation on the proposed consumer duty.  The FCA wants firms to put themselves in the shoes of the consumer and ask "would I be happy to be treated in the way my firm treats its customers? " The FCA says that consumers will remain responsible for their decisions, but consumers can only take responsibility for their decisions when the conditions leading to making those decisions are right.  It talks about the importance of FCA regulated firms moving away from tick box compliance to looking at the outcome a customer receives.  

In many ways, this concept of outcomes based regulation is not surprising and we have seen the FCA moving in this direction for the last few years. But, how does it work in practice for consumer credit lenders? Consumer credit regulation is largely a tickbox exercise with draconian sanctions for not ticking the box correctly.  Our regulation is dominated by a statute which is nearly fifty years old and is not fit for purpose for the technological innovation which we are now seeing. 

To put this into context, let's take a step back and think about what the current regulatory framework means for a customer buying goods online financed by a loan.  This type of customer journey would already be subject to several tiers of disclosure: 

1. consumer protection disclosures relating to the sale of the goods (for example pre-contract information under the Consumer Contracts Regulations and the E-Commerce Directive);

2. pre-contract explanations of the credit agreement (highlighting certain key factors regarding the finance);

3. pre-contract information of the credit agreement (prescribed form disclosure with very little room for manoeuvre in presenting this information in a more consumer friendly fashion); and

4. finally, the credit agreement itself.  

The FCA's consumer duty seems to add another level to this as lenders are required to consider what other information customers may need in order to make the right decision.  So, if a lender is aware that the pre-contract information does not effectively disclose information to a customer then will it also need to provide this information in a different way to allow its customers to make an informed decision? If so, it would still also have to provide the pre-contract information in the prescribed form to "tick the box" and satisfy its Consumer Credit Act obligations.  

Whilst reflecting on this, I saw the interesting article below about the dangers of (currently) unregulated buy now pay later (BNPL) and focusing on behavioural biases.  This proposes requiring BNPL lenders to explain to customers the psychological risks posed by BNPL including the risk of ordering lots of items online and deferring payment.  So, in addition to all other legal disclosure, the argument is that BNPL lenders should explain the risks of a customer forgetting to return unwanted items.  

And this is the difficulty with the FCA's proposed consumer duty, how far do firms have to go to lay the groundwork for a customer to make an informed decision?    Firms will need to consider the behavioural biases of customers at every stage of the customer journey, which for many will be a new way of thinking.

Wherever the line in the sand gets drawn, one thing is clear, it is time for a rethink on information disclosure in consumer credit.  How can a lender possibly provide all this information to the customer in a comprehensible and digestible manner?  How can a customer be expected to extract and understand all the key messages? It is simply information overload for any one person.  

Too much noise and disclosure will mean that the really key messages are lost.  I can already picture myself clicking and swiping without reading any additional information on the screen.   

So, in considering the steps to take with BNPL and the consumer duty generally, the regulator has to consider the bigger picture of existing consumer credit legislation. Otherwise we risk bolting another level of disclosure and information requirements onto consumer credit whilst also having to tick the existing boxes.  The result will not be a positive outcome for lenders or customers.