Topic 8: Consumer protection

Question 1

Capital

Answer 1

The money or other assets owned by an individual or a business. In the case of a financial services provider, it refers to the funds provided by the shareholders, not deposits from customers.

Question 2

Chancellor of the Exchequer

Answer 2

The British Cabinet minister responsible for financial and economic matters and in charge of the Treasury

Question 3

Citizens advice

Answer 3

A charity providing free, independent, confidential and impartial advice on citizens’ and consumers’ rights and responsibilities

Question 4

Competition and Markets Authority (CMA)

Answer 4

An independent, non-ministerial government department, which works to promote competition between providers so that customers benefit.

Question 5

Consumer credit

Answer 5

This is another term used for borrowing. It is important to understand that ‘taking credit’ or ‘buying on credit’ refers to borrowing. However, a credit into a bank account means paying money in.

Question 6

Credit crunch

Answer 6

A reduction in the availability of loans or a tightening of the conditions needed to obtain one. The global financial crisis of
2007–08 began when financial institutions became reluctant to lend funds to one another.

Question 7

Credit union

Answer 7

A mutual organisation (that is, owned by its members) that provides a range of financial products, eg savings accounts and
personal loans to members. Members of a credit union must share a common bond, eg all work for the same employer or all
work in the same district.

Question 8

Current account

Answer 8

Bank or building society accounts where people can store their money in the form of electronic balances and withdraw it to make payments.

Question 9

Debit card

Answer 9

A card that can be used to withdraw cash, to make face-to-face transactions in, for example, shops, and to make payments online or over the phone.

Question 10

Deposit

Answer 10

A sum of money placed by a customer with a financial services provider.

Question 11

Financial Conduct Authority (FCA)

Answer 11

One of the two main regulators of financial services in the UK (the other is the Prudential Regulation Authority)

Question 12

Financial Ombudsman Service (FOS)

Answer 12

An independent body set up by Parliament that settles customer complaints about providers at no charge to consumers.

Question 13

Financial Policy Committee (FPC)

Answer 13

A part of the Bank of England that monitors and responds to risk posed to the entire financial services market. Its focus on
the whole market makes it a macro-prudential authority.

Question 14

Financial Services Compensation Scheme (FSCS)

Answer 14

A compensation scheme that pays compensation to account holders of up to a certain amount per provider if the provider
goes into default (in other words cannot pay account holders the money they have in their accounts).

Question 15

Independent Commission of Banking (ICB)

Answer 15

A committee formed in June 2010, as a response to the global financial crisis. It considered reforms to the UK banking sector
to promote both financial stability and competition.

Question 16

Independent Financial Advisor (IFA)

Answer 16

A professional who makes financial recommendations to clients, based on available products across a wide range of providers.

Question 17

Investment banks

Answer 17

Banks that are involved in trading financial assets such as shares, underwriting issues of shares by other institutions and advising on mergers and acquisitions. Investment banks do not provide services such as current accounts, etc – these are provided by retail banks.

Question 18

Liquidity

Answer 18

The assets that a business holds in the form of cash, that can be used to meet immediate demands for payment. (Many assets
cannot be used in this way – for example a company that owns a building or machinery would have to sell them in order to make
a payment.)

Question 19

MoneyHelper

Answer 19

An independent organisation set up by the government to support people to make the most of their money and pensions

Question 20

Money Laundering

Answer 20

The process of making ‘dirty’ money (money gained from criminal activities) ‘clean’ – in other words making it look as though it has been acquired legitimately.

Question 21

Mortgage

Answer 21

A loan taken out to pay for a property, usually over a long term such as 25 years

Question 22

Office of Fair Trading (OFT)

Answer 22

The government department that monitored how businesses compete with each other. It was abolished in April 2014 and its
responsibilities shared between the Financial Conduct Authority and the Competition and Markets Authority

Question 23

Overdraft (authorised and unauthorised)

Answer 23

A facility that allows an account holder to withdraw more money than they actually have in their account. An authorised overdraft
is agreed with the bank in advance within certain limits. Exceeding those limits or going overdrawn without permission is
an unauthorised overdraft, and attempted withdrawals may not be honoured.

Question 24

Payday loan

Answer 24

A loan designed to be taken out for only a very short period, which charges a very high APR

Question 25

Payment protection insurance (PPI)

Answer 25

An insurance product intended to ensure repayment of loans should a borrower face unexpected events that prevent them
from repaying the debt

Question 26

PIN

Answer 26

A secret personal identification number that verifies a user’s identity to a system, eg at a point of sale for debit and credit cards.

Question 27

Prudential Regulation Authority (PRA)

Answer 27

One of the two main regulators of financial services in the UK (the other is the Financial Conduct Authority)

Question 28

Retail banks

Answer 28

Banks that deal directly with consumers, for example providing current accounts and mortgages

Question 29

Standards of Lending Practice

Answer 29

A voluntary code of conduct that sets out good practice for the provision of advice about loans, credit cards, charge cards and
current account overdrafts. It assures customers that subscribed providers follow the Standards and gives information on the
service they should expect.

Question 30

Sub-prime market

Answer 30

Lending to and borrowing by consumers with untested or poor credit histories.

Question 31

Transaction

Answer 31

Buying or selling something

Question 32

Treasury

Answer 32

Her Majesty’s (HM) Treasury, the government department responsible for development and implementation of financial and economic policy