Criteria Cash ISA
Criteria for the FairLife Cash ISA Mark
The FairLife Cash ISA Mark is focused on eliminating ‘zombie’ accounts. Secondary effects of the mark may include product simplification and a reduction in the number of accounts offered. These features are all mentioned in the FCA’s cash Savings market Study as outcomes that promote consumer satisfaction.
Each criterion is numbered below with a title line and short description.
FairLife Cash ISA Mark criteria:
1. The first criterion is a minimum interest rate when the cash ISA is beyond any offer period (relative to the interest rate on the licensee’s open products):
- A FairLife Cash ISA not in an offer period must have interest rate terms of at least half the best terms offered by the licensee on any comparable, open, instant access, cash ISA products. Where a firm has no open products, or where these accounts have material features (such as a requirement for regular investment) the licensee may choose a reasonable interest rate for its post-offer product. The rate chosen should be in keeping with the spirit of the fair trading initiative.
2. The second criterion is that customers' money is protected:
- A FairLife Cash ISA must be backed by the deposit class of the Financial Services Compensation Scheme (FSCS).
3. The third criterion is display of the FairLife Mark.
- The third criterion requires that the licensee places the FairLife Cash ISA Mark on all contracts for qualifying products which will be sold as FairLife Cash ISAs.
As part of the licence agreement providers also agree to send details of relevant interest rates given to customers in the previous twelve months if requested to do so by FairLife Ltd.
The first criterion is a minimum interest rate, relative to the licensees other products.
Criterion one is the primary criterion for preventing zombie accounts. It limits the minimum interest rate a provider can pay on a cash ISA relative to its own comparable products. A comparable product for a post-offer cash ISA would normally be an instant access cash ISA.
The restrictions are worded to prevent firms totally collapsing the rates on legacy FairLife Cash ISA products whilst using high rates to attract fresh capital into new cash ISA products. The restrictions do not prevent providers from attracting new capital with higher rates. Providers may offer new, comparable products with interest rates up to 100% greater than those paid to their legacy customers.
Where a firm has no open, instant access, cash ISA products, or where these accounts have features which impact materially on the rate offered, the licensee may choose a reasonable interest rate for its post-offer products. The rate chosen should be in keeping with the spirit of the fair trading initiative. Where possible the rate offered should be linked to a savings product that is open for investment.
An allowance of one month is made for licensees to react to changes such as interest rate movements. Where interest rates breach criterion one for more than a month FairLife Ltd must be informed.
FairLife Marks are designed to be adopted by peer groups of leading firms. Where external factors cause these peer groups to approach FairLife’s thresholds, the thresholds may be altered to suit the prevailing market conditions.
The second criterion is that customers' money is protected.
The vast majority of Cash ISAs are protected by the deposit class of the Financial Services Compensation Scheme but products are available which do not offer their customers this cover.
The third criterion is display of the FairLife Mark.
A key benefit of the FairLife charity is the brand awareness that will be achieved by having a consistent mark spanning all areas of finance. It will give comfort to people ranging from vulnerable clients in debt to the elderly sorting out their pensions.
Only contracts displaying the FairLife Mark are part of the FairLife initiative. In this way FairLife offers a route by which customers can see very clearly whether they have a FairLife product and providers can evolve their cash ISA product range to become more consumer-centric.
Development of the Mark
Cash ISAs are generally well run by the financial services industry. Complaints are currently low and have been since the inception of the product. FairLife are launching a Cash ISA Mark to further improve these products and to further reduce complaints.
The biggest criticism of cash ISAs is that interest rates can drop to very low levels; the so called ‘zombie accounts’. Where low rates reflect an economic reality this is acceptable. The practice disliked by customers is where a financial institution appears to profit deliberately from their situation.
Money left in zombie accounts may indicate that customers are busy, unwell, vulnerable or not financially aware. Zombie accounts have the effect of transferring wealth from these groups to those able to work the system.
The FairLife Cash ISA Mark is focused on eliminating zombie accounts. Secondary effects of the mark may include product simplification and a reduction in the number of accounts offered. These features are all mentioned in an FCA report as outcomes that promote consumer satisfaction.
As discussed in the FCA’s cash Savings market Study it is not considered desirable to collar interest rates too tightly. Providers must have flexibility to be innovative and customers must be rewarded if they study the market and switch their money actively. The FairLife Cash ISA Mark will ensure that customers are not penalised unreasonably if they leave their money invested long term.
To download a summary of the mark click here
To download a licence for the mark