The Financial Conduct Authority (FCA) has frequently spoken of the need for all authorised firms to treat vulnerable customers fairly and says that there is a large risk of consumer harm if firms do not have effective policies in this area. Whilst there is a requirement under FCA Principle 6 to treat all customers fairly, the regulator says that, where customers are not treated fairly, the extent of the harm caused is likely to be higher for vulnerable customers than non-vulnerable customers.
Whilst not proposing any new rules at this stage, the FCA is consulting on proposed guidance regarding treatment of vulnerable customers. Instead the proposed guidance sets out the FCA’s view of what the FCA Principles require of firms to ensure that vulnerable consumers are consistently treated fairly.
The FCA defines a vulnerable consumer as “someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.”
The regulator adds that it “wants to see doing the right thing for vulnerable consumers deeply embedded in firms’ culture.”
A firm’s procedures for dealing with vulnerable customers should encompass:
• Understanding the needs of vulnerable consumers
• Ensuring staff undergo rigorous training so that they have the skills and capabilities needed to identify vulnerabilities – here it is vitally important that staff are alert to possible indicators of vulnerability at all stages of the customer journey, and vulnerability will not always be apparent at application stage
• Taking action to ensure those with vulnerabilities are treated fairly – some firms have a policy of referring all customers identified as vulnerable to a specialist team who have been trained to a higher level. Lenders may need to be alert to even the slightest indication of financial difficulty and then carry out a re-assessment of the customer’s financial circumstances with a view to considering whether a payment arrangement needs to be set up
• Designing products that are as simple to understand as possible – this could be backed up by explicitly asking the customer if they understand the terms and conditions before the sale is concluded
The FCA claims to have survey data that shows 50% of UK adults are potentially vulnerable, and this proportion is likely to be higher amongst customers of lenders, credit brokers, debt managers and debt collectors.
The FCA says there are four key drivers which may lead to someone being classed as vulnerable:
• Physical or mental health issues – here the definition is widened to include people with low mental capacity and sight and hearing impairments
• Life events, such as bereavement, loss of employment or relationship breakdown
• A low level of resilience when it comes to withstanding financial or emotional shocks – this may refer to people with low income or variable income levels or who are heavily in debt
• A limited knowledge of financial matters or a low level of confidence in managing money – this may include the youngest and oldest UK adults, or anyone who has poor literacy or numeracy or who has a limited grasp of the English language.
A vulnerability in one area can lead to issues in another area, for example an adverse life event can lead to mental health problems
Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said:
“Protecting vulnerable consumers is a key priority for the FCA and we want to see firms explicitly embedding the fair treatment of vulnerable consumers into their culture. Where we find that firms are not doing enough to ensure that consumers are treated fairly, we will take action.
“Firms need to take particular care to ensure that vulnerable consumers are treated fairly as they may be more likely to experience harm. The guidance should drive improvements across the industry, improving outcomes for millions of vulnerable consumers.”
The consultation closes on October 4 2019 after which the FCA will issue the second stage of its proposed guidance on this topic.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article