Chancellor Rachel Reeves's reforms to the banking sector risk hurting vulnerable Britons as consumers will face "weakened protections" when attempting to access financial redress.
Consumer advocates are sounding the alarm over the Government's Enhancing Financial Services Bill, warning that proposed changes to financial regulations could leave vulnerable customers without recourse when they are treated unfairly.
The legislation, announced during the King's Speech, introduces sweeping reforms to the Consumer Credit Act and the Financial Ombudsman Service.
An official impact assessment accompanying the bill has sparked concern that those most in need of protection may find themselves shut out from compensation schemes.
Britons could lose access to the financial redress under new banking rules
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Notably, the banking sector stands to benefit significantly from the overhaul, with projected savings exceeding £1billion over the next decade.
The impact assessment reveals that the reforms risk creating steeper obstacles for consumers seeking redress while simultaneously weakening deterrents against poor industry practices.
Those with disabilities, mental health conditions, or limited financial literacy and digital capabilities are expected to bear the brunt of these changes.
According to the assessment, these individuals are "less likely to spot noncompliance, to know which route to pursue, or to persist through protracted complaints, increasing the likelihood that harms go unremedied".
High street banks are set to benefit from the changes
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The bill projects the Financial Ombudsman Service will handle 27,900 fewer cases annually, leaving approximately 3,000 consumers without an estimated £600,000 in yearly compensation payments.
Alex Neill, co-founder of Consumer Voice, warned that restricting access to redress "risks tilting the balance further away from consumers and reducing pressure on firms to resolve complaints fairly in the first place".
She argued that pursuing economic growth should not come at the cost of holding financial institutions accountable.
"Ministers should be focused on strengthening confidence in the financial system, not weakening protections for consumers who already face the greatest barriers to being heard," Ms Neill said.
The City of London is anxious over the stock market's peformance | PAThe Government has pushed back against criticism, arguing the changes will not disproportionately affect those with protected characteristics since the sanctions being removed are linked to prescriptive information requirements that are also being scrapped.
Ministers acknowledged the Consumer Credit Act reforms "may result in households forgoing cash redress" where breaches lacked "demonstrable harm".
Regarding the Ombudsman changes, officials conceded there would be "some direct negative impacts, although we expect a net benefit." The Treasury declined to comment when approached.
UK Finance, the banking industry body, welcomed the modernisation plans, stating updated rules would allow lenders to communicate with customers "in clearer, more tailored ways."