Posted: 27th August 2014

Following the FCA’s ‘acquisition’ of 45,000 consumer credit firms, one of the ‘hot topics’ has been the subject of vulnerable customers.

This issue affects the breadth of financial services, particularly from an understanding and suitability perspective. The subject of vulnerable customers is now, more than ever, firmly in the cross hairs of the FCA following the transition of the consumer credit firms. This is due in part to the increased levels of vulnerability within the sub-prime customer group, coupled with the high interest rates associated with the increased level of non-payment.

A background

For firms considering their approach, the FCA’s paper on this subject published in April is essential reading.

In early July 2014, the Finance & Leasing Association (FLA) held a round table discussion with the FCA and the Royal College of Psychiatrists (RCPsych) to look at how firms can better identify and assist vulnerable customers. This was part of a project the FCA is currently carrying out across all financial services products to look at how vulnerability is currently handled with the aim of ensuring that firms create and put into practice appropriate strategies to address the needs of customers in vulnerable circumstances.

How does the FCA define vulnerability?

The Prudential Regulation Authority’s definition is:

‘A vulnerable consumer is someone who, due to their personal circumstances, is especially susceptible to financial detriment, particularly when a firm is not acting with appropriate levels of care.’

Breaking this down further, the FCA has identified the following characteristics and circumstances that it views as ‘vulnerable’.  They have made it clear that firms need to consider these when implementing their policies and procedures, to ensure that the vulnerable customers are treated fairly and to comply with CONC 7.2.1(2):

Personal characteristics

  • Restricted mobility
  • Communications needs
  • Resource limitations
  • Low basic skills
  • Low financial capability

Personal circumstances

  • Mental health problems e.g. depression / anxiety, bi-polar disorder
  • Memory problems e.g. age, dementia
  • Life events e.g. bereavement, illness
  • Poor financial situation
  • Niche requirements e.g. example, health conditions, legal status, etc.

Current situation and firm reactions

The FCA has observed that while there are numerous good practice guides in place and goodwill amongst staff, the end result is a lack of consistency in approach, as well as products and services which do not reflect / react to the realities of people’s lives.  Many procedures already in place within firms only focus on issues such as restricted mobility and do not consider vulnerability in the FCA’s wider sense. Some examples of this include financial capability or language barriers. Firms need to adapt their approach to encompass the full spectrum of vulnerability.

Many firms have setup special teams within departments such as collections to deal with disabled customers. With the seeming widening of definitions, some firms are worried about how they will cope. However, while this separation and alternative treatment may be appropriate for certain vulnerable groups, this need not always be the case. The FCA does not require firms to have a large scale specialist team to cater for vulnerable customers. Their key expectations are summarised in the table below:

FCA requirement

Evidence within firms

Have appropriate policies in place to identify consumers in vulnerable circumstances

  • A consistent approach across individual businesses
  • Proactively seeking to identify vulnerability

Policies to approach consumers in vulnerable circumstances in a sensitive and flexible way

  • Vulnerability factored into product design, marketing and service provision
  • Firms adaptive and empathetic
  • Staff adequately trained to implement policy

Be as transparent as possible in their dealings with consumers in vulnerable circumstances

Firms’ policies clear to consumers and consumer organisations


Next steps for firms and the FCA

Firms need to consider these requirements and expectations and apply them to their own business. In many cases, the specialist teams firms already have to serve customers with mental capacity limitation, will likely remain entirely appropriate and may only need to be updated to include the RCPsych guidance. Elsewhere in the firm it is more likely that as opposed to adding another team, existing processes will need to be adapted to consider vulnerability. Furthermore, all customer facing staff will need to be trained on how to identify different vulnerable groups and to treat them fairly; embedding this learning within the existing context and high level ways of working.

Firms that haven’t already done so need to review their processes to take into account this broader approach to vulnerability. In early 2015, the FCA will publish a discussion paper on vulnerable customers which will include examples of good practice, while continuing to discuss the wider issue within firms.

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