How do you define vulnerable customers?

05 September 2017

What does a vulnerable customer look like? Following the FCA’s business plan, published in April, it’s a question many firms will be reconsidering. It’s especially important given the FCA highlighted vulnerable customers as one of its six-cross sector priorities for 2017/18, saying it’s concerned that firms don’t always recognise when consumers become vulnerable, or treat them 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. It emphasises the fluid nature of vulnerability, stressing that any consumer can become vulnerable at any time, and vulnerability can be temporary, sporadic or permanent.

What does this definition mean when applied to customers in the real world? And how do firms create effective policies to identify and respond to vulnerable customers? In an occasional paper published in February 2015 on consumer vulnerability, the FCA explained that vulnerability is much broader than individuals’ characteristics. It cautioned against categorising vulnerable customers into specific minority groups, saying this approach is too simplistic. Some circumstances that cause vulnerability could affect anyone, regardless of their level of income or capability. The FCA suggests using risk factors instead, which might include caring responsibilities, a change in circumstances, a physical disability, and many more.

As a starting point for defining customers who are, or may become vulnerable, firms should consider determining their own set of risk factors that are relevant to the market they operate in. This means thinking about the types of customers you have on your books, and whether they may have any characteristics that makes them more susceptible to vulnerability. It’s also helpful to look at your experience of customers who have fallen into arrears in the past – what circumstances led to this? Did the customer lose their job, suffer from an illness or split from a partner? Carrying out this analysis will help you to ensure your staff can identify potential triggers of vulnerability when speaking to customers.

More widely, vulnerability triggers are not just limited to customer circumstances. They can also include macro-economic factors, such as a rise in interest rates. So it’s helpful to model some potential scenarios relevant to your customer base, such as different levels of increase to interest rates, and the impact they could have on your customers’ vulnerability.

Another important category of triggers is the actions or processes of firms themselves. The FCA says vulnerability can be caused or exacerbated by firms, highlighting that poor customer interactions or systems that don’t flex to meet individual customer needs can create a spiral of stress and difficulty. Looking at past relevant cases and complaints may help you to identify whether there are any aspects of your systems and controls which could make vulnerable (or potentially vulnerable) customers’ situations worse.

After you’re satisfied that you can define and identify vulnerability, the next step is to consider what tools you have in place to help vulnerable customers and how effective those tools are. Recording accurate data on vulnerable customers can really help with this initiative. Monitoring the number of vulnerable customers, their circumstances, and how successful any tools used to help them are (for instance, what proportion of vulnerable customers were no longer considered to be vulnerable after the firm intervened?) will provide valuable management information. Firms can use this data to continually update and improve their vulnerable customers strategy, which is critical given the fluid nature of vulnerability. In doing this, it’s important to consider data protection and transparency, given the General Data Protection Regulation (GDPR) is due to come into force in May 2018. Under the GDPR, it will become even more crucial to protect customers’ data appropriately, particularly as this data is likely to be considered sensitive.

Overall, the issue of vulnerable customers is certainly not a black and white one, and so it’s important firms take an appropriately flexible approach to their processes and policies.

                       

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