Customer protection obligations are on the rise

Customer protection is a rising obligation and concern for corporations in most markets. Sometimes it comes through elaborated rules that the compliance function needs to implement and monitor. But even without a legislator or regulator intervention, the public is more aware of its rights and seeks a greater quality of the products and services. In our world of social media, failing to serve and protect properly the customer is a real risk. This article lists some of the trends and risks that I have observed.

1. Financial consumer protection

Transparency and fairness obligations in the financial sector are growing stronger due to concerns about predatory lending, hidden fees and misleading financial products. Agencies such as the US Consumer Financial Protection Bureau (CFPB) aim to protect customers from unfair practices. In the UK, the “Consumer Duty” was introduced by the FCA and is in full force with since July 2024: “the Duty sets high standards of consumer protection across financial services and requires firms to put their customers' needs first”.

Trend. Increased regulation of Fintech companies as well as of traditional financial institutions to protect consumers from fraud, mismanagement and exploitation.

2. Transparency and honest advertising

Regulators are tightening rules around advertising, particularly with misleading claims, hidden commissions or unfair pricing practices. Cases of misleading advertising have resulted in higher fines and penalties. Over the recent past, large cases included the airline Qantas Airways Limited, who admitted (May 2021 to August 2023) misleading consumers by advertising tickets for tens of thousands of flights it had already decided to cancel and failing to promptly notify ticket holders of cancellations.

Trend. Consumers are demanding more transparency in marketing, with increasing calls for companies to clearly disclose upfront product prices, tariffs, terms of service and technical characteristics.

3. Ethical consumerism

As sustainability becomes a priority, consumers are becoming more concerned about the environmental and social impact of their purchases. Many consumers are demanding that companies act responsibly, and governments are introducing regulations on greenwashing (making false claims about being environmentally friendly) and supply chain transparency. In the textile and fashion industry for example, there are now quite famous cases such as H&M: textile waste due to rapid clothing turnover, use of harmful chemicals in the products, as well as inhumane working conditions. In the automotive sector, a famous case is the “clean diesel" campaign, which falsely advertised certain Volkswagen (VW) and Audi diesel vehicles as environmentally friendly and compliant with emissions standards. The US Federal Trade Commission (FTC) revealed this massive false advertising case. Such cases are a rare occurrence but a very serious issue: the fine was close to 35 bn USD!

Trend. Ethical consumption is on the rise – and regulation is catching up – as customers prefer companies that adhere to fair labor practices, environmentally sustainable practices and social responsibility

4. Right to Repair and programmed obsolescence (“ecodesign”)

The right to repair is gaining momentum as consumers push to be allowed to repair their own products rather than being forced to rely on manufacturers. Proprietary parts and accessories can make products more difficult to repair. Laws are emerging, particularly in Europe and the United States, requiring companies to provide repair manuals, spare parts and tools to repair products. An example is Apple's "Lightning" charging ports and adapters, which require a non-standard process to repair, leading recently the EU to standardize charging ports and requiring all devices to use USB-C.

Trend. Consumers advocate for less waste and more control over the products they own, leading to regulatory changes, notably in the technology and consumer electronics sectors.

5. Product safety and product recall

The public pays attention to product safety, especially in sectors such as food, pharmaceuticals, cars and electronics. This drives a stricter regulatory oversight by agencies such as the US Consumer Product Safety Commission (CPSC). Examples of product recall are countless.

Trend. With an increased focus on product safety, we will observe the multiplication of recalls and product safety audits.

6. Digital platforms and e-commerce regulation, cybersecurity and fraud prevention

Governments are increasingly focused on protecting consumers from fraudulent on line transactions, counterfeit products and unfair digital market practices. The EU's Digital Services Act (DSA) and Digital Markets Act (DMA) are prominent examples of regulations aimed at ensuring safer online environments and fair competition. With cyber attacks, data breaches and online fraud on the rise, governments are placing more emphasis on cybersecurity measures.

Trend. Increased scrutiny of online marketplaces and digital platforms to ensure fair practices and better protection of consumers against fraud or harmful products. Companies improve their cybersecurity standards and the education of consumers about fraud prevention.

7. Greater access to dispute resolution

To enhance customer protection, increasing emphasis is being placed on improving dispute resolution mechanisms such as mediation, arbitration and other consumer recourse channels.

Trend. Companies need to provide easily accessible, simple, transparent and cost-effective methods for customers to resolve disputes without having to go to court.

Customer protection obligations are on the rise. This is an area with growing risks and for which control functions – audit, risk and compliance – need to be on top of their game.