The UK’s Financial Conduct Authority (FCA) has called for improvements in digital loan processes to enhance consumer understanding of agreements.
In a review of the sector, the FCA noted that the design of digital platforms can steer customers in specific directions, impacting their comprehension of products and features. While effective design can promote positive consumer outcomes, the FCA warns that it can also lead to hasty decision-making, potentially contrary to Consumer Duty rules.
The regulator discovered that some lenders have adopted shorter, clearer language and utilized explainer videos to aid customer understanding. However, certain digital loan processes lack ‘positive friction’—elements that encourage consumers to pause and reflect—and often omit essential information, such as costs.
Positive frictions include aspects of the consumer journey that promote thoughtful decision-making, such as checkboxes, time delays, and requirements for evidence declaration in high-risk investing contexts.
Alison Walters, director of consumer finance at the FCA, stated, “Online and app-based applications can simplify access to credit for individuals navigating their financial lives. However, poorly designed applications may cause users to overlook crucial information. We aim to share examples of effective practices and shortcomings to help lenders better support their customers.”