A different approach to vulnerable customers

25 May 2017

The Financial Conduct Authority’s (FCA) business plan revealed a new cross-sector priority compared to previous years: vulnerable customers. While the FCA has looked at this issue before, it now plans to prioritise vulnerable customers "over others". And it expects firms to focus on this issue more closely. So what do firms need to do differently?

The regulator identifies two major issues: how firms identify when consumers are or may become vulnerable; and how firms treat vulnerable customers. Vulnerability occurs when someone, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care. Thus, vulnerability can encompass a range of issues, including physical and mental health problems, and debt. The FCA stresses that any consumer can become vulnerable at any time in their lives, and vulnerability can be temporary, sporadic or permanent.

So, firstly, how do you identify vulnerable or potentially vulnerable customers on an ongoing basis? Firms have access to a great deal of customer data, and can analyse spending and purchasing patterns, credit history and indebtedness. But analysing that data in a holistic, effective and manageable way can be challenging. There’s also the question of where to draw the line, particularly as data gathering and analytics becomes increasingly sophisticated, and new legislation like the European Union's General Data Protection Regulation (GDPR) will impose much more rigorous requirements on handling of personal data when it comes into effect in May 2018. For instance, a payday lender receiving an application for credit from a customer via a GPS-enabled mobile phone may be able to identify that the applicant is at a casino, has paid for numerous transactions at bars in the last few hours and defaulted on their last repayment. Is that a vulnerable customer, and does the firm have a responsibility to decline the application?

The ‘any customer can become vulnerable’ rule means that firms must consider their entire customer base when assessing for vulnerability. It may be tempting to try to discount certain groups on the basis of age, income or product type. But the FCA says taking this approach could result in poor customer outcomes. In its September 2106 thematic review of mortgage lenders’ readiness for mitigating the impact of a rate rise on vulnerable customers, the FCA found some firms excluded certain customer types from their analysis of vulnerable customers (such as those on fixed rate mortgages). It suggested firms shouldn’t be taking such a blanket approach, because consumers can become vulnerable at any time.

So, after you’ve identified a customer as vulnerable, how do you then treat them fairly? The FCA emphasises the importance of taking a flexible approach, and responding in a tailored way to vulnerable customers. The FCA urges firms to offer services which can adapt to the changing circumstances of real life, rather than being designed for an ‘average’ or ‘perfect’ customer.

While hard to disagree with this in principle, it creates challenges when applied to large, complex organisations with very diverse retail customer bases. Banks with millions of customers need policies in place to ensure a consistent approach and to manage their business. So how do firms ensure their policies and processes are flexible enough to treat all customers fairly? One way to do this is to flesh out policies with guidance and examples that relate directly to the products and services the firm offers - drawing on customer feedback, research and complaints. This approach will help firms to consistently achieve fair outcomes for customers, while taking into account the unique nature of each situation and customer. Firms may also wish to consider how they create better communication channels with customers, to encourage customers to let them know when their circumstances are changing.

The FCA plans to give further details on its approach to vulnerable customers later this year. In the meantime, firms should take steps to ensure their policies and practices are fit for all their customers’ needs.

Andrew Strange | Director
Profile | Email | +44 (0)20 7804 6669
Follow @astrangepwc

Tessa Norman | Senior associate
Profile | Email | +44 (0)20 7213 2508
Follow @TessaNormanPwC

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