FCA focus on vulnerable customers hits high-cost credit

As part of its proposed new approach to consumers, the Financial Conduct Authority (FCA) wants to prioritise those who are most vulnerable, and have the lowest financial resilience. It consulted on this approach in November 2017, prompting questions about what this would mean in practice. And as the FCA prepares to issue a policy statement this summer, it’s given firms an insight into what its renewed focus on vulnerable customers will look like, through the findings of its high-cost credit review.

The FCA published the findings of its review last month, and consulted on proposals for a range of remedies to help protect high-cost credit customers. These remedies clearly demonstrate the FCA’s aim to reserve its most significant market interventions for sectors or issues where it believes customers are most vulnerable. For instance, it’s considering a price cap for rent-to-own products because of the perceived vulnerability of customers who use these products, and the high costs associated with them.

The FCA’s focus on vulnerability is also evident throughout its wider review findings. For example, the regulator is particularly concerned about the costs and charges associated with unarranged overdrafts, which it argues vulnerable consumers are more likely to use. It’s considering some significant remedies for this market, such as aligning arranged and unarranged overdraft prices.

Further, across a number of high-cost credit products, the FCA hones in on persistent debt and repeat borrowing, proposing tougher requirements for firms to identify such customers and intervene at an early stage. Again, it’s clear the FCA is particularly concerned about harm to vulnerable customers, and protecting them from falling into a downward spiral of debt. 

So what does this all mean for consumer credit firms? The proposed changes are likely to mean alterations to firms’ sales processes and practices, and post-sales care. As firms consider these changes, they should bear in mind the FCA’s repeated emphasis on taking a flexible and customer-centric approach. The regulator’s work has shown that systems and processes which don’t flex to meet vulnerable customers’ varied and often complex needs can make their situation worse.

To do this well, businesses need a good understanding of which customers are vulnerable and/or have lower resilience, and which products or aspects of the sales journey can create particular risks for these customers. Further, firms need to understand what potential poor outcomes look like for these customers, and how to prevent them occurring. Holding focus groups and seeking feedback from customers across their journey through the business can be an effective way for firms to gain a genuine understanding of how their practices impact customers, and any changes they could make to better meet their needs.

In addition, firms can use technology to improve customer communications and the way they identify signs of vulnerability – issues at the heart of much of the FCA’s overall work on vulnerability. For instance, businesses could use artificial intelligence to monitor data patterns and voice interactions to pick up signs that customers may be vulnerable.

The FCA’s proposed remedies show that it’s serious about protecting the most vulnerable and least resilient in society. And high-cost credit firms (as well as those in other sectors with a high proportion of vulnerable customers) need to be able to demonstrate that they truly understand their customers, and have adequate measures in place to protect them from harm.

John Coley | Director
Profile | Email | +44 (0)7720 897942
Tessa Norman | Manager
Profile | Email | +44 (0)7826 927070
Follow @TessaNormanPwC

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