Empowering consumers through improving financial capability

Lord Turner, chairman of the Financial Services Authority (FSA), said that a clear regulatory commitment to deliver consumer protection needs to be combined with policies to build customer capability.

Speaking at the FSA's Financial Capability 'Helping Consumers through the Recession' conference in Cambridge, he outlined the increasing importance of protecting consumers through regulation but said that this must be dovetailed with improved consumer financial capability.

Lord Turner said: "It is common sense that people armed with skills, such as budgeting and planning ahead, as well as up-to-date information about new products, will be better able to cope with what life throws at them. It is also common sense that consumers will be more confident and trusting if they know a robust system of consumer protection is in place to ensure firms act in good faith."

The FSA's financial capability programme aims to enable better informed, educated and more confident consumers, who are able to take greater responsibility for their financial affairs and play a more active role in the market for financial services. Individual projects focus on specific groups in the population, targeting information and help to the specific circumstances they are facing. These groups include new parents, young adults, students, employees and people in further or higher education, as well as people requiring generic money guidance. This year's conference will explore ways to reach people facing redundancy, the unemployed and hard-pressed families.

However, Lord Turner stated that education, guidance and capability won't, by themselves, empower consumers. Consumers need to be confident that firms will protect their interests, confident the regulator will make sure that happens and confident that there are safeguards in place if things go wrong.

This is why, in the last 12 months, the FSA has:

• increased compensation limits for depositors, dramatically increasing financial security for consumers
• taken swift action to ensure firms didn't apply unfair terms in tracker mortgages which would have allowed them not to pass on base interest rate reductions
• moved decisively to ensure that when consumers seek out independent advice, that they are receiving the best product for them, not simply the one which gives the adviser the best commission
• pushed forward on reforms to the payment protection insurance (PPI) market, for example on single premium PPI
• started preparing enforcement actions against firms it recently investigated regarding their mortgage arrears practices

Lord Turner went on to state that markets may not always work for the consumer and, sometimes, human behaviour means that too much choice can result in consumers taking no action. This means that radical questions need to be asked about how financial markets function and how the regulator should respond. These questions include:

• Can there be too much innovation in some markets - with complexity acting as a barrier to understanding?
•  Are some products too complex to be sold to consumers at all?
• Should we be prepared to intervene on pricing, even at the expense of access to the market for some people?

Lord Turner concluded: "I don't pretend to have all the answers to these questions today. Or, indeed, that there are blanket answers that apply to every market or product. But what is clear is that consumer protection, financial capability and market intervention to protect consumers needs to be seen as part of an integrated strategy. And this needs to be grounded in an understanding of what role each element plays in empowering consumers and building their confidence in the market."

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