Background: why institute a ban?
Previous FCA investigation has established that selling products as add-ons can restrict consumer choice and competition. In particular, offering add-ons at the point of sale of the primary product can have a significant detrimental impact on consumer behaviour, encouraging purchase of the add-on produce without sufficient information. This can leave customers with unsuitable products or products representing poor value for money.
The FCA has defined add-ons as: “any type of good, service or right obtained in connection with, or alongside, a primary product – whether it is financial in nature or not”.
In March 2015, the FCA consulted on proposals to ban the opt-out selling of add-on products and to improve the information made available to add-on buyers.
In a new policy statement issued on 28 September 2015, the FCA confirmed that:
- Customers will no longer be automatically opted into purchasing add-on products;
- Customers who have previously been opted into add-on purchases must be made aware of their option not to renew the add-on; and
- Firms will need to provide additional information to consumers about an add-on product prior to any purchase.
The new rules will come into force on 1 April 2016.
The new regime
Renewal of add-ons sold prior to rule implementation:
Where customers purchased add-ons prior to April 2016, firms must take reasonable steps to obtain customer consent to the renewal of add-ons where customers were automatically opted-in to the original purchase.
Renewal of add-ons sold after rule implementation:
Where customers purchase add-ons under the new rules, active elections will not be required at each renewal, provided the add-ons are offered on substantially the same terms.
Products not covered by the opt-out ban
- Free products will not be affected by the opt-out ban, as customers are not harmed by such products. If products become chargeable, the ban will be triggered.
- The opt-out ban will not apply to unbreakable bundles, which are groups of products sold together. Despite evidence that these products reduce customer choice, they are not generally formed of add-on products and customers are usually aware that they are purchasing unbreakable bundles.
In the FCA’S Handbook guidance, ICOBS 6.1.5R requires firms to take reasonable steps to ensure that customers are given appropriate information about products in a timely manner, to enable them to make an informed decision.
However, some firms have treated ICOBS 6.1.5R as applying only to standalone products. To address these concerns, the FCA has introduced ICOBS 6.1.6AG. This new provision confirms that the information rule does apply to add-ons, not just to standalone products.
It is estimated that complying with the new regime will cost firms between £0.5m and £2.5m. However, the new rules are expected to benefit consumers, enabling them to better value add-ons in terms of price and suitability. It is hoped the changes will improve competition and result in increased price transparency.