Protecting consumers from financial harm – especially those most susceptible to detriment
(from an article to be published shortly by https://www.transparencytaskforce.org/ )
Financial harm is defined in many ways. To start us off, here is a statement from Fife Adult Protection, a statutory body in Fife, Scotland.
“Financial harm may be perpetrated by anyone. It can range from not acting in the adult’s best interests to persuasion or coercion regarding gifts or loans, misappropriation of property or allowances, theft, rogue trading, or mass-marketing fraud.
A distinction should be drawn between those acting in a position of trust and others. Financial harm may be opportunistic; however those in a position of trust have greater opportunity to commit financial harm.” 
Other sources provide similar definitions, often focusing on scams, extortion and fraud. The implication, though, is that financial harm can be criminal or legal. It’s the amorphous legal world of financial services that concerns us here, and how regulators and the government can play a part in opposing harmful actions of service providers. The Treasury Committee recorded that a vulnerable consumer is:
“Someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.” 
Money, and financial services in their broadest sense, plays an unavoidable role in our wellbeing. Money is a store of value and a reward for our work. The state pays pensions and benefits. It fines people for breaking the law. And it taxes people on, among other things, their income and spending. We could argue as materialists might, that our property and our selves are connected, and that hurting our finances feels as serious as hurting our bodies. Financial harm and physical harm are closely related, and the repurposing of the word “harm” is appropriate.
Depending on one’s wealth, dealings with the financial sector manifests in perhaps three paradigms. The wealthiest, with their wealth managers and private banks, have lawyers to call upon if they suspect their best interests have not been upheld. And they are likely to be exposed to assets like property and private equity that are not generally available to less wealthy investors. The large middle band of investors will likely use the services of the popular household names, including current account providers, pension providers, life assurance companies and mortgage lenders. Those with no savings or investments are likely to experience lenders of short term credit, retail finance, basic accounts at banks, and for those who are “just about managing”, insurance companies, credit card issuers and workplace pension schemes. I now focus mostly on this last group.
The discourse for making money is a strong one regardless of one’s wealth, and there is a belief among many people that financial products can make them rich, despite the risk-free rate of return being close to zero (negative in some jurisdictions) and the equity risk premium estimated at around 3%. Anyone marketing returns above these rates is essentially deceiving people. As I write this piece, I have just seen a National Lottery advert: “This Wednesday £15M / £15M CHRISTMAS JACKPOT / DON`T MISS OUT”. Is this indicative of the problem? Should it not read: “Never see your money again / Don’t miss out”, because that is going to be true for the vast majority of participants? And that from a state-sponsored enterprise that has a particularly significant patronage among society’s least wealthy. Indeed when one has only a small amount of spare cash, investments aren’t going to make a major difference to one’s future whereas winning the lottery (or bingo or the races) just might.
Debt is often marketed in much the same way as lottery tickets. The lure of owning something now, a new phone or a new car perhaps. Invitations for finance appear emblazoned across showrooms and store fronts. The susceptible redrawn in. The Money and Mental Health Policy Institute concluded that “people with mental health problems are three times as likely to be in problem debt as those without” . And from my experience as a counsellor, the cart can also be before the horse, where people’s mental health suffers as a result of problem debts. The result is that the state and charity sectors provide the help and support such people need to get back to full financial and mental health. In short, the profits from debt benefit the private sector but the costs are socialised.
How do regulators respond? According to the FCA, “virtually every adult in the UK is a consumer of financial services”. Consequently, they proclaim:
“We work to protect consumers in a wide range of ways. We act to ensure firms have their customers at the heart of how they do business, give them appropriate products and services, and put their protection above the firms’ own profits or income.” 
A bold claim. Many people don’t appreciate that they are exposed to all kinds of risks to their savings, pensions and loans. Older people in particular trust the “nice man who came round” with their investments, or with the law firm their family has used since before they were born. The recent scandal of final salary pension transfers is typical of how the financial sector is a step ahead of regulators. Others will trust the provider that appears at the top of a comparison site listing, without doing the kinds of due diligence that a financial business would do. We might say “A fool and his money are soon parted”, but that presupposes that there is equality in power and knowledge between the parties. There is little doubt that with financial services, there is a great deal of power imbalance between providers and consumers, hence the need for protection. Regulators need to do more. Or at least deliver what they say.
As we move towards a cashless financial ecosystem, despite a campaign to keep cash , the need for every person to have a bank account increases, if only to receive pensions or benefits. In 2016 the Government designated the nine largest providers of current accounts in the UK18 as legally required to offer basic bank accounts to eligible customers. However, Robin Bulloch of Lloyds Bank told the Committee that these accounts were not making money for the banks . The banks clearly don’t like the scheme. Yet banks are in the privileged position of being authorised to create national currency in the form of loans for the purpose of generating profit. Surely banks are either franchisees of the nation’s monetary policy or they’re not, much as they would love to cherry-pick. These basic bank accounts are the least we can expect from them. An alternative might be that a state bank provides these basic bank accounts, much like Girobank or National Savings Bank used to. But my instinct is that banks must share the costs of this.
But how do we protect people from accumulating unsustainable debts in the first instance? I am drawn to wonder why our contract law privileges the financial sector in recovering bad debts arising from these loans. Logically there needs to be a shared responsibility between lender and borrower in terms of who bears the risks. If a person is too risky to lend money to, then don’t lend them money in the first place. Some will say that it’s important that everyone has access to affordable financial services (including loans) but my opinion is that we are trying to solve the wrong problem. Today’s debt-fuelled economy has seen the cost of living rise – particularly housing. We have normalised the idea of being in debt. Mortgages, student loans, retail finance and credit cards all result in a flow of wealth from the least to the more wealthy, and from the tenant to the landlord.
Until something is done to change our debt-based ecosystem, we will be forever funding national solutions to restructure people’s debts and put broken lives back together.
1 Financial Harm: Prevention, Identification, Support and Protection. Fife Adult Protection. https://www.fifevoluntaryaction.org.uk/downloads/financialharm.pdf
2 Consumers’ access to financial services. House of Commons Treasury Committee (171). https://publications.parliament.uk/pa/cm201719/cmselect/cmtreasy/1642/1642.pdf
3 Consumers’ access to financial services. House of Commons Treasury Committee (51). https://publications.parliament.uk/pa/cm201719/cmselect/cmtreasy/1642/1642.pdf
4 Protecting consumers. FCA: https://www.fca.org.uk/about/protecting-consumers
5 UK’s cash system ‘will collapse without new laws. BBC. https://www.bbc.co.uk/news/business-51550061
6 Consumers’ access to financial services. House of Commons Treasury Committee (24). https://publications.parliament.uk/pa/cm201719/cmselect/cmtreasy/1642/1642.pdf