The FSA has published Feedback Statement 09/2: Consumer responsibility: Feedback on DP08/5 (FS09/2). FS09/2 reports on the main issues arising from Discussion Paper 08/5: Consumer responsibility (DP08/5).
The DP08/5 was a contribution to the debate about the respective rights and responsibilities of firms and consumers in the retail market for financial services. The background to it was the obligation put on the FSA by the Financial Services and Markets Act 2000 to have reference to the “general principle that consumers should take responsibility for their decisions” when deciding what is the appropriate level of protection for consumers.
As far as the basic legal position is concerned, the responses indicated four main areas of concern:
- The "caveat emptor" principle. This statement was unacceptable to some respondents, even though it is correct as a reflection of the common law and principles of freedom of contract. Nevertheless, case law and legislation has shifted away from this starting position and the report suggests that consumer responsibilities will have to be viewed in the light of this.
- The effort a consumer should make to understand information. Some respondents disagreed with the assertion in DP08/5 that consumers should make reasonable efforts to understand offers in the market place, leading to the question as to what constitutes an “average consumer”. Since the European Court of Justice has described the ”average consumer” as someone who is reasonably well informed and reasonably observant and circumspect, the FSA suggests that it should follow that consumers should be expected to make a reasonable effort to understand the documents that they are given, although that should exclude the need for them to check that they have not been misled.
- Other expectations related to the consumer ‘playing his part’ in the transaction. The FSA notes that the courts have expected the reasonable consumer to engage in discussions with his adviser and check that his personal circumstances and objectives are properly disclosed to, and understood by, the adviser. A reasonable consumer should also follow an adviser’s recommendation to seek advice from another professional. The FSA also points out that a consumer “playing his part” is nonetheless entitled to rely on an adviser’s advice.
- The case law examples provided. The FSA chose the cases cited in DP08/5 on the basis of their being easily understood and illustrative of the point being made, not for being the point’s best or sole justification.
Taking the responses to all the questions in DP08/5 as a whole, the feedback covered a wide spectrum of views. In the absence of consensus the FSA intends to maintain the approach set out in DP08/5.
Dan Waters, Director of Retail Policy and Conduct Risk, FSA, said:
"The FSA believes in the importance of having a transparent policy-making framework. The feedback statement and our original discussion paper set out for the first time the approach we take to consumer responsibility and will help the industry understand our approach to this important topic.
We intend to take forward the positive dimensions of this work through our financial capability agenda and our wider consumer communications strategy.
The more engaged, demanding and discerning consumers become, the better off industry and consumers will be."