Twelve Days of Consumer Duty #6: “foreseeable harm” in payments

It’s day 6 of our Twelve Days of Consumer Duty exploring key questions midway through firms’ implementation journeys.  

Today’s question

“What is the nature of ‘foreseeable harm’ when it comes to payments?”

The answer

The FCA’s policy statement on the Consumer Duty makes it clear that a firm can contravene the obligation to avoid causing “foreseeable harm” through its actions or omissions (a) in a direct relationship with a customer or (b) through its role in the distribution chain.

Payments firms with direct retail contact should ensure that customers understand and accept the risks of using their products and services -the FCA is clear that firms need not protect consumers from risks they understood and accepted.  Two significant risks here are:

• Withheld or irrecoverable funds.  Fraud and scams are rapidly developing and evolving risks which firms need to meet with agile processes to detect issues (including via transaction monitoring, customer complaints, press and regulatory warnings) and address them.  Scam warning messages to customers will be important.  AML controls are closely related to the appropriate management of these risks.
• Financial difficulty through mis-use of a credit product.  On the latter, the target market may be relevant: if it has limited experience with credit, a firm might for example need to introduce more friction into the application process, for example by setting more onerous requirements for customers around reading risk disclosures and certify their understanding.

For firms without direct retail relationships, bear in mind the FCA’s guidance that Consumer Duty obligations are proportionate to a firm’s role in its distribution chain.  Risks here may coalesce around service levels and outages, including weak operational resilience frameworks and contingency frameworks.  We anticipate, for example, that merchant acquirers will focus on these areas to minimise disruption to retail cardholders.

Want more?

Visit our webpage for all our insights on the Consumer Duty including our entire Twelve Days series, webinar recordings, publications, podcasts and other blog posts from us, or reach out to us to continue the conversation!