Finance firms should all be given a simple star rating such as that used by ebay or the Food Standards Agency, a consumer watchdog says.
The FCA needs to bring in a straight forward system to help consumers which would be based on matters such as regulatory fines, according to The Financial Services Consumer Panel.

The panel said the measure should be comparable across providers and also available for incorporation into other decision-making channels, like price comparison websites.

In a research paper, the organistation cited E-Bay, Which? and the Food Standards Agency as examples of star ratings sytems already in practice.

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The latter has developed a ‘scores on the doors’ hygiene measure for eateries, as well as ‘Red, Amber, Green’ ingredient labelling for supermarket foods.

The FSCP report stated: “Both schemes have enabled consumers to engage with previously ‘hidden’ information and make more informed decisions at the point of sale.

“A ‘star’ system, or similar, would help consumers work out at a glance which firms were likely to treat them well post-sale. It could also amplify the impact of penalties or poor service levels by giving firms a clearer incentive to improve behaviour and to treat customers fairly, thus driving competition, and increasing overall trust in retail financial services.”

The panel’s research found consumers wanted “impartial and authoritative information from a trusted source”.

The report said: “They also showed a strong preference for a single composite index or small set of indices that could be developed into a recognisable brand like the Food Standards Agency hygiene ratings or energy efficiency ratings.

“They wanted the aggregate information to be depicted in a straightforward visual way, such as star ratings or similar.

“Consumers say the information should be authoritative, impartial, easy to understand, and incorporated into existing decision-making tools, like comparison tables.”

The Panel suggested a score for firms’ behaviour could be developed from available data, including regulatory history such as penalties and redress, and service level data held by firms for example, time spent waiting by customers who phone a contact centre.

It urged the FCA to consider the feasibility of developing a composite measure as part of its work on Smarter Consumer Communications.

Sue Lewis, the panel's chair, said: “When people buy a financial product or service, they have no idea how well the firm they are buying from will treat them after the sale. Sadly, their expectations are not high, and they assume that all providers are as bad as each other.

“There is a wealth of information available on the way firms treat their customers, but it is hard to get at or to interpret, so people can’t use it for making decisions about which firms they want to do business with.

“We think the FCA should lead the way in combining the different aspects of firm behaviour together in a single measure. At the very least, we believe the regulator should require firms to publish more data about service level and firm conduct, and consider how these can be made most accessible to consumers.”