Griffin is a long-time consumer protection expert in financial services. She advised CGAP on outcomes-driven market conduct approaches, focusing on jurisdictions incorporating TCF concepts into their regulatory system. Griffin is currently a senior advisor with the Consumer Financial Protection Bureau. This blog post is the result of the author’s independent research and does not necessarily represent the views of the Consumer Financial Protection Bureau or the United States.
What is “Treating Customers Fairly?”
TCF is an emerging outcomes-based regulatory and supervisory approach that shifts the responsibility for protecting consumers somewhat from the regulator to the financial services provider. The UK developed the TCF approach to market conduct regulation, implemented through its Financial Conduct Authority. Under the UK’s approach, also adopted by South Africa, firms are expected to demonstrate that they deliver the 6 TCF outcomes to their customers throughout the product life cycle, from product design and promotion, through advice and servicing, to complaints and claims handling. Other jurisdictions have taken on the approach, customizing it to fit their regulatory framework and capacity.
TCF shifts responsibility for protecting consumers from the regulator to the financial services provider.
Under this approach, regulators are challenging financial service providers to demonstrate the value of their products. They’re saying, “You’re selling products to consumers. You’re telling consumers these products are going to help them achieve their financial goals. So show us!”
Why is TCF important right now?
In the past 10 years, we’ve experienced a global financial crisis, and we continue to experience round-the-world mis-selling and overselling of financial services and products. More and more countries are realizing the connection between financial services and the ability of consumers – particularly vulnerable consumers – to achieve key financial goals. Whether it is moving out of poverty or achieving a milestone such as purchasing an asset, having access to appropriate financial services is critical.
You mention that TCF is often outcomes driven. Could you elaborate on this?
Rather than focusing only on compliance or firm behavior, an outcomes-driven approach looks at results: how have consumers fared in the marketplace and are they being treated fairly. The six outcomes assess whether or not firms are treating their customers fairly, and whether the products they sell meet the needs of the consumers for whom the products were developed. Companies are marketing their products more and more by linking them to improved financial and other outcomes for their customers. TCF is asking to see some proof.
Could you tell us more about the difference between various levels at which customer suitability for a product is addressed: ability to repay, affordability, and suitability?
In financial services markets characterized by information asymmetry – where consumers do not have the relevant information, they need to make decisions – caveat emptor (buyer beware) has been the norm. As stronger protections are put in place, the situation moves from companies being required to “do no harm” to consumers to placing the consumer’s interest ahead of their own. Between those two standards lies different levels of protection – from selling products that are affordable, to selling products that are not unsuitable, and on up to selling products that are suitable to the needs of the particular consumer (see illustration below).