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New vulnerability guidance announced, after FCA finds exploitation among certain firms

The Financial Conduct Authority (FCA) has released new guidance for firms to do more to protect vulnerable customers, after discovering some companies have been exploiting individuals’ circumstances.

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According to the FCA, more than 24 million people display one or more potential characteristics of vulnerability which includes physical and mental health issues, recent life events such as bereavement, capability and financial resilience.


After researching vulnerability policies across various creditors, the regulator found many examples of good practice and firms “thinking carefully about their customers and potential vulnerability”. However, the FCA said it is also aware of cases where vulnerability is either “not considered by firms or positively exploited for gain”.


The FCA found that some firms frame information in certain ways which can exploit “information asymmetries” between the firm and vulnerable customer. According to the guidance, vulnerable customers may be less likely to access online information, be aware of their rights and be able to process information about products and services.


As a result, the FCA said, vulnerable customers may be mis-sold products or services that do not meet their needs, be at more risk of debt and may pay more than efficient costs for products or services.


The proposed new guidance, now out for consultation, aims to provide a framework that allows all firms to accurately assess whether they are treating vulnerable consumers fairly. The regulator is aiming for consistency across the financial services sector. Alongside the draft guidance, the FCA also published research on vulnerable consumers’ experiences of dealing with financial services firms.


The research, which includes 21 in-depth case studies of consumers displaying a range of indicators of vulnerability, highlights four key themes:

  • Recognising vulnerability and understanding customers’ needs;
  • The value of sympathy;
  • The importance of empowered and knowledgeable staff;
  • Meeting vulnerable consumers’ communication needs.

Christopher Woolard, interim chief executive at the FCA, said: “Today’s guidance sets out what firms should do to ensure vulnerable consumers are being treated fairly. We know many more customers will be struggling with their finances as a result of the impact of coronavirus.”


“While many firms do excellent work to support their vulnerable customers, we will not hesitate to step in where others do not.”


Chris Fitch, vulnerability lead consultant for the Money Advice Trust, said: “This revised guidance makes clear that vulnerability remains at the very top of the FCA’s agenda, where it should be. At a time when millions of people’s situations have been turned upside down by the impact of coronavirus, the FCA is right to challenge firms on what more they need to do to support vulnerable customers.”


Fitch added: "We welcome the ‘common harms’ that the FCA has now set out, which should encourage firms to think beyond single issues and circumstances, and encompass the complexity of people’s real lives. This is also the first time the regulator has attempted to quantify the costs of responding to vulnerable customers, while balancing this with the benefits this can bring to firms and consumers alike.”


The guidance is open for consultation until 30 September 2020. Its implications for lenders and collections firms will be a key theme at this year’s Collections & Vulnerability Summit, on November 12 at the Midland, Manchester.


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