Over the past few years the credit industry has seen large changes and a focus on the vulnerability of consumers.
The FCA has put a firm stamp on the matter within the CONC guidelines with a number of specific sections, such as the following:
- A firm must establish and implement clear, effective policies and procedures to identify particularly vulnerable customers and to deal with them appropriately:
- Most customers seeking advice on their debts under credit agreements or consumer hire agreements may be regarded as vulnerable to some degree by virtue of their financial circumstances.
- Of these customers, some may be particularly vulnerable because they are less able to deal with lenders or debt collectors pursuing them for debts owed.
- Customers with mental health and mental capacity issues may fall into this category.
- A firm must ensure that all persons visiting a customer’s property on its behalf act at all times in accordance with the requirements of CONC7 and do not:
- Visit a customer at a time when they know or suspect that the customer is, or may be, particularly vulnerable.
- Firms should note CONC7.2.1R (and its accompanying guidance) which requires firms to establish and implement policies and procedures for the fair and appropriate treatment of particularly vulnerable customers.
Vulnerability is not going to go away anytime soon with the FCA’s momentum. It remains a focus, not just for the FCA, but also now for the other big regulators, OFCOM, OFGEM and OFWAT in 2017. As discussed at the Arum-sponsored Utility Week Consumer Debt Conference, the latter two have joined up to understand how they can tackle vulnerability in the utilities sector.
It is clear the regulator is not taking the issue lightly and is keen to make an example of those who are lax in their approach to vulnerable customer management.
In only the past year, there have been significant fines and censure:
- £4m fine for Yorkshire Building Society with the FCA quoting: “YBS’s actions meant that customers in vulnerable circumstances risked falling into further financial difficulty.”
- £30m fine for Homeserve where the FCA felt there was a significant number of elderly customers who had been failed by Homeserve in a number of different processes.
- £1m fine to a sole trader due to misleading vulnerable customers – the largest fine ever issued to a sole trader.
I have heard and seen many reasons for not dealing with vulnerability from poor interaction to limited systems, or with no overall vulnerable strategy at a business level. However, a common challenge for many companies is the very definition of vulnerability. By its very nature, this is often quite subjective and whilst often easy in hindsight, in the moment, with the customer, it can be tricky. It is a judgement call.
A lot of companies still rely on agent discretion to determine whether a customer is vulnerable or not, using case panels to review customers flagged as vulnerable. In others vulnerability is taken to heightened scales, defining any customer over retirement age as vulnerable and, if populated, a “free text” unvalidated vulnerability field on systems also treats the customer as vulnerable.
This is further complicated by the fact that many customers choose to not disclose vulnerability and vulnerability can come in different forms, permanent, temporary or sporadic. Then if vulnerability is established, it is not something that is shared via the credit reference agencies, so it has to be established at every company they do business with.
It can raise some real challenges with consistency, ones we need to overcome and address to help provide the best customer outcomes.
“Vulnerability is a state, not a trait.”: Utility Week Consumer Debt Conference 2017
So, as we move forward in 2017 there are five key areas to check:
- Company level policies are in place for vulnerable customers
- Current practices are consistent and treating customers fairly
- Systems provide the ability to record and utilise data pertaining to identified vulnerability
- Having the right culture
- Vulnerability training.
If any of these could be a gap, it is time to look at vulnerability again. Failure to do so could result in some unintended consequences:
- Unnecessary regulatory attention resulting in warnings or fines
- Incurring reputational damage to you, your company and the brand
- Generating complaints which could be avoided
- Not maximising revenue opportunity and OPEX reduction by getting it right with the customer first time.
Ultimately it has been difficult to establish hard and fast rules, but that doesn’t prevent ensuring customers are treated fairly with the best possible outcome.
At Arum we have industry experts who have specialised in vulnerability strategies in Collections. If you would like to discuss vulnerability in more detail, or just want to find out how we can help your business, contact us today.
Owen Atkinson, Senior Consultant