UK Finance chief has “real concerns” about Consumer Duty

David Postings, chief executive of UK Finance, has “real concerns” about the impact that the incoming Consumer Duty will have on business lending.

Speaking on day two of UK Finance’s commercial finance conference in Canary Wharf, Postings warned that the Consumer Duty could lead to a lack of funding options for small- and medium-sized enterprises (SMEs), as lenders pull back due to the complexity of the requirements.

“I have real concerns about the incoming Consumer Duty,” said Postings.

“While it does not apply for all SMEs, it is vital that Consumer Duty expectations for businesses are not just a direct extension of those for retail customers. Because these sets of customers are very different.

“Consumer Duty means that lenders need to demonstrate that customers understand the pros and cons of each product. Deciding what a good outcome is for really small businesses will be complex and open to retrospection.

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“I fear that this will result in product withdrawal in order to avoid problems down the line.”

The new Consumer Duty comes into force at the end of July, and requires all lenders to ensure that they are putting customer needs first. However, the regulation has been criticised for being too vague and overly complex for non-traditional lenders.

Earlier this month it was revealed that two-thirds of UK lenders are yet to fully review the Consumer Duty requirements.

Postings noted that the Consumer Duty represents just one of the many threats to SME financing at the moment. He also highlighted the “increasing regulation to reach net zero”, saying that there is a risk that lenders increasingly need to see a company’s net zero plans to be able to end.

“For some businesses, these plans simply won’t exist,” Postings said.

“This does represent a hurdle for SMEs who might not have the experience or capacity to demonstrate their carbon footprint.”

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Furthermore, he said that many lenders are seeing record applications from SME lenders which will lead to a rise in the number of rejected loan applications.

“Small businesses are at the heart of our economy, responsible for 60 per cent of employment and 70 per cent of net job creation,” Postings added. “But today, our small businesses face a different set of challenges.

“We now find ourselves in a rising interest rate environment. We all know that the cost of living and of doing business has risen. And more SMEs have borrowing legacies leftover from the pandemic.

“The banking and finance industry is committed to lending where possible, and doing so responsibly.”

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