Few concepts under the FCA’s Consumer Duty have generated as much debate, or uncertainty, as fair value. For retail lenders, the price and value outcome has fundamentally shifted expectations towards actively demonstrating that products deliver reasonable value relative to the benefits customers receive.
While the principle itself is not new, its application in retail lending is proving challenging. Many firms can demonstrate that Consumer Duty has been implemented across their product suite. Far fewer can confidently evidence fair value in practice – particularly under supervisory scrutiny. As we move through 2026, the ability to clearly demonstrate fair value, with robust evidence and outcome‑based analysis, is no longer optional. It is a core determinant of regulatory credibility.
Drawing on FCA supervisory outputs and our hands‑on work with retail lenders across the market, this article sets out what supervisors are really looking for – and what leading firms are doing differently to stay ahead.
Fair Value: more than pricing, more than policy
Under Consumer Duty, fair value is not confined to pricing at origination. The FCA is clear: fair value must be assessed throughout the customer journey. A lending product that appears to offer fair value at origination can drift into poor value over time. For example, where customers remain on higher reversionary rates, behavioural biases reducing refinancing, and charges accumulating during arrears or forbearance. This requires lenders to assess whether the total price paid by customers – including interest, fees, charges and ancillary costs over the lifetime of the product is reasonable when compared to the overall benefits customers receive.
Crucially, the FCA has been clear that firms cannot rely on simplistic justifications such as “the customer chose the product” or “the price is market‑competitive”. Fair value is not determined solely by customer consent or competitive benchmarking, but by a firm’s own evidence‑based assessment of outcomes.
In practice, that means firms must evidence that:
- Pricing reflects risk without leading to overcharging
- Customers receive the benefits they reasonably expect compared to the price that they pay
- Fees and charges over the lifetime of the product are proportionate and transparent
- Non-financial factors such as quality and accessibility of customer support, effectiveness of collections and forbearance practices, and the speed and fairness of complaint handling is representative of the price a customer pays
- Higher‑risk or vulnerable customers are not systematically disadvantaged
What supervisory activity is telling us
1. Governance without evidence will not stand up
Strong governance structures are now table stakes. What supervisors are challenging is whether firms can demonstrate how fair value analysis actually drives decisions and outcomes.
In our support of firms, best practice includes:
- Using clear fair value playbooks to standardise decision‑making – e.g., a practical framework that defines how value is assessed, what evidence is required, and when issues must trigger action or escalation. Used well, it ensures fair value judgements actively shape pricing, servicing and remediation decisions, not just documentation.
- Explicitly documenting pricing and value rationales with MI that links pricing to real customer experience and outcomes
- Producing board papers that show how analysis has changed behaviour, not just been reviewed
In a supervisory review, firms needs to be able to evidence why products deliver fair value, not merely confirm that an assessment has been completed. What you can evidence matters far more than what you can explain verbally.
2. Outcome‑based measurement is critical
Many firms still rely on input‑led metrics to demonstrate fair value such as average APRs, complaint volumes, or MI completeness. The FCA’s focus is different: did customers actually receive value?
Leading practice includes:
- Outcome distribution analysis, not just averages
- Behaviour‑based triggers (e.g. repeat arrears or persistent borrowing)
- Cross‑product cost analysis to understand real customer impact (e.g. that any cross subsidisation within lending portfolios is not disadvantaging certain customer groups)
Firms that succeed focus on what matters to customers, not just what is easy to report.
3. Vulnerability must sit at the heart of fair value
Supervisors continue to identify disconnects between vulnerability frameworks and fair value assessments. Treating these separately creates risk.
Stronger approaches we have observed include:
- Embedding vulnerability indicators into pricing and collections reviews
- Using outcomes testing to test real customer journeys where vulnerability affects affordability or suitability and whether they impact fair value
- Using this evidence to assess whether vulnerable customers experience poorer value compared to other customer groups
This is a regulatory priority – and one that continues to drive supervisory intervention.
4. Fair Value doesn’t stop at affordability checks
Affordability at the point of sale is necessary, but insufficient in isolation to demonstrate fair value. Supervisors are increasingly focused on value over the full customer journey, including:
- Changes in customer circumstances that may impact fair value
- Collections and forbearance practices
- Repeat borrowing and rollover behaviour
Firms need to demonstrate that affordability and value assessments evolve as customer behaviour changes.
5. Outsourcing does not outsource responsibility
Where underwriting, servicing or collections are outsourced, the FCA expects firms to retain full accountability for fair value.
Supervisors are looking for:
- Contractual requirements aligned to fair value outcomes
- KPIs that reflect customer outcomes, not just commercial performance
- Robust assurance and audit rights
If third‑party success is measured solely by revenue or recoveries, fair value risk is already elevated.
6. Market benchmarking is not optional
The FCA expects firms to understand how their value proposition compares to the market – and to act on that insight.
Effective benchmarking should:
- Be current, relevant and product‑specific
- Cover pricing, fees, repayment structures and service outcomes
- Be clearly linked to strategic decisions
Benchmarking without action does not evidence fair value.
7. Proactive remediation differentiates strong firms
Supervisory scrutiny of remediation continues to intensify. Firms that identify poor value and act early, with clear methodologies and strong root cause analysis, consistently fare better.
The FCA expects:
- Timely and transparent remediation
- Defensible redress calculations
- Evidence that issues will not recur
Basic remediation logs are no longer sufficient.
Final thought: Fair value as a strategic advantage
Fair value under Consumer Duty is not a one‑off exercise. It is an ongoing, evidence‑led discipline that touches pricing, governance, data, third‑party oversight and customer outcomes.
In 2026, FCA supervision is increasingly centred on:
- Outcome‑driven analytics
- Vulnerable customer experience
- Third‑party governance
- Lifetime affordability and value
- Robust benchmarking and evidence
How Square 4 can help
Square 4 helps firms move from compliance to confidence. Firms that get this right treat fair value as:
- A board‑level risk priority
- A driver of more sustainable product and pricing strategies
- A source of improved customer retention and trust
- Reduced remediation and enforcement risk
Fair value isn’t just about regulatory compliance. Done well, it protects customers and strengthens the business. In an increasingly competitive and scrutinised retail lending market, firms that genuinely embed fair value into decision‑making are likely to be better placed – not only to meet regulatory expectations, but to build resilient, customer‑aligned business models.
If you would like to discuss your approach to Fair Value Assessments, please contact us at hello@square4.com
Darren Fisher – Senior Advisory Director
