Vulnerable Customers: Avoiding Fines

31st January 2020

The Financial Conduct Authority is pushing firms to take greater care when dealing with vulnerable customers. This is to ensure that vulnerable customers are not exploited, and are given additional support to make financial decisions, particularly when those choices have long-term consequences.

Vulnerable customers may not have the capacity to see through sales tactics or to fully understand all of the implications of decisions that can have wide-ranging and long-lasting impacts on their finances. The essential nature of financial services (living in the modern world is difficult without access to a bank account) means that vulnerable customers must be protected to ensure they do not become excluded from these essential services – either through an overt ban or through the indirect barriers created by complexity or technology.

As with most regulatory issues, a key part of compliance is education and communication. Adhering to the FCA guidelines demands that employees understand their obligations, know how to recognise a vulnerable customer, and understand how to support these customers.

But what does ‘vulnerable customer’ really mean – and what can you do to avoid the risks of fines?

Which customers might be considered vulnerable?

The FCA advice makes the clear distinction that ‘vulnerability’ is not a fixed state; people often experience transient periods of vulnerability. You might be vulnerable for a short period of time because of bereavement, illness or a job loss. Alternatively, you might emerge from a period of vulnerability if your situation improves.

When thinking about vulnerable customers, it’s important to keep this in mind. Customers do not exist in a vacuum. Any customer can become vulnerable. And people may be vulnerable for a day, a year, or an entire lifetime.

Colleagues may struggle to recognise vulnerable customers if they expect the signs and symptoms of vulnerability to be visible or audible.

The FCA suggests that there are four drivers of vulnerability:

  1. Health
  2. Life events
  3. Resilience
  4. Capability

Let’s look at some examples.

Health issues may include chronic or acute diseases, conditions or disabilities that can make it harder for customers to evaluate their options, manage complexity and make decisions in their own interest.

Life events such as the loss of a loved one, a financial shock, relationship breakdown or acting as a carer can make customers vulnerable to predatory businesses. Customers with additional support needs, such as ex-offenders, care leavers and refugees, can also be considered as potentially vulnerable.

Resilience issues relate to financial capabilities as well as emotional resilience to hardship or stress. Financial factors include low income (or an unpredictable income), high levels of debt or low savings. While most people have a network of friends or family they can call on, vulnerable customers may not have a support structure they can turn to in difficult times.

Capability factors include a wide range of issues, such as low levels of English language skills, difficulty using digital tools, learning impairments, low literacy or poor numeracy skills.

As you can see from some of these examples, it is often impossible to see or hear the factors that cause vulnerability in customers.

What risks are vulnerable customers exposed to?

All customers may be at risk from predatory or exploitative practices, but research by the FCA suggests that vulnerable customers may be more likely to experience:

Financial exclusion. This might mean not having a bank account or not having much insulation from financial shocks, such as insurance, savings, investments or pensions.

Difficulty accessing services. This could be caused by a lack of digital connectivity in rural areas, or difficulty accessing physical branches.

Partial exclusion. Customers may be excluded from some financial services or products because they are unable to assess all their options, or because they are discriminated against.

Disengagement with the market. Switching products and services often gives customers better deals and benefits. Vulnerable customers may be less able to review their finances and make a decision to switch, which can put them at a disadvantage.

Scams. With fraudsters using complex social-engineering techniques to steal our data and access our accounts, it’s easy to fall prey to scammers. Vulnerable customers may check their accounts less frequently, and may be less likely to notice irregular transactions or unauthorised payments.

Mis-selling. As noted above, high-pressure sales tactics or exaggerated claims may cause stressed, worried or unwell customers to accept bad advice.

Inability to manage a product or service. Navigating complex financial services can be stressful for anyone. The prospect of having conversations with financial service providers can be particularly daunting for vulnerable customers, who may not always understand their rights and protections.

Purchasing inappropriate products or services. Vulnerable customers may not fully understand all of the options when evaluating financial products and services, or they may be more inclined to accept the recommendation of a sales person. This can lead them to purchase products or services that they do not need or which are inappropriate for their requirements.

‘Vulnerable’ may be an objectionable term

It’s important to recognise that very few customers would like to be considered vulnerable, or to have that label applied to them. This creates a challenge for firms who want to support vulnerable customers, but are also conscious of the difficulty of applying labels.

One solution might be to offer customers the option to self-identify any additional support needs they may have, such as simplified English statements or bills, guidance on dealing with debt, or additional support to understand their financial position.

How can your colleagues protect vulnerable customers?

As we’ve already noted, identifying vulnerable customers is difficult and problematic. Some signs of vulnerability are visible, but many are not. Vulnerable customers do not always announce themselves, or ask for special support.

The onus is on firms to be aware of the issues and conscious of the moments when vulnerable customers are most at risk when interacting with their organisation. For example, colleagues who serve customers need to understand the risks of putting pressure on vulnerable customers, or selling customers products or services that are not beneficial.

Vulnerable customers e-learning course

The new Vulnerable Customers e-learning course from Marshalls is an effective way to deliver this important compliance message to your entire cohort. Our video-rich course gives your colleagues a complete understanding of the regulations, your responsibilities, the risks of non-compliance and the steps they can take to protect customers.

Vulnerable Customers e-learning course is available as an off-the-shelf course, or we can customise the content to suit your organisation and the needs of your learners.

How can we help your colleagues develop key skills – and reduce your compliance risks? Get in touch today.

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