The outcome of the latest Financial Conduct Authority (FCA) consultation into high-cost credit is expected to strengthen protection for vulnerable consumers. Martin Kisby, head of compliance at Equiniti Credit Services, offers guidance on how technologies can help lenders identify vulnerability and safeguard their customers from unmanageable debt.
Is the answer to how best to define a vulnerable consumer really as simple as quoting the FCA’s definition? “A vulnerable consumer is someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.”
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Whether every vulnerable consumer “is especially susceptible to detriment” is debatable, but what is beyond doubt is that lenders need to look carefully and sensitively at the person as well as the loan application.
Consumer vulnerability can manifest in a range of different scenarios, from ongoing mental and physical health issues (which are usually well documented), to much more sudden and unexpected instances like divorce, shock bereavement, job loss or even an unexpected bill that impacts the applicant’s disposable income.
As a result, taking a single approach to managing all customer vulnerabilities just does not work. Through their policies and systems, businesses must be careful not to discriminate or make sweeping generalisations: just because an individual has a mental health issue does not mean they will default on loan repayments or misunderstand information given to them.
Nonetheless, lenders cannot escape making some assumptions – every loan applicant must be subjected to a risk analysis, which will necessarily draw, at least in part, on customer behaviour trends and data-driven patterns of behaviour.
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By GlobalDataThe FCA has provided some insight into what a “good” firm looks like when dealing with vulnerable consumers within its Occasional Paper 8. This certainly helps lenders develop high-level processes. Crucially, however, the paper does not indicate how firms should be identifying vulnerable consumers.
THE WAY FORWARD
So, what can be done? Firstly, and most importantly, no two consumers should be treated the same. Vulnerability cannot be pigeonholed into categories whereby certain demographics are handled in specific and defined ways.
Each consumer must be listened to, treated with empathy and ultimately dealt with appropriately in accordance with their own circumstances.
There are lots of excellent tools that have been developed to help front-line staff manage these situations, such as the Texas model or Idea protocol.
After research from the Money and Mental Health Policy Institute illustrated the need for agencies to improve the way they advised clients with mental health problems, Bristol University, together with Money Advice Trust, published new guidance in this area: Vulnerability: A Guide for Debt Collection contains 21 steps to assist businesses, and is one of the most helpful and comprehensive documents of its type, providing some useful guidance for firms.
New systems and controls can also be implemented to hardwire vulnerability protection into the loan application process.
Here, lenders can predetermine criteria that will trigger an alert and highlight an area of concern about an applicant. New predictive analytics and AI tools are also emerging that can use customer data to provide far more sophisticated insights into behavioural patterns.
On the operational front, specific and considered training for all front-line staff can ensure that vulnerability considerations remain a key part of their customer engagement processes.
In some instances, it may also be appropriate to seek external advice and guidance; the Samaritans, Stepchange and Payplan all provide support to lenders dealing with vulnerable consumers on a regular basis.
Together with affordability and suitability, vulnerability is one of the FCA’s hottest topics, and one that all firms dealing with consumers on a regular basis should take extremely seriously.
At any point in their lifetime, an individual can experience some difficulty in personal, health or financial circumstances, and it is right to expect that lenders are suitably geared up to identify and support them when this happens.
A closer look at this now will also pay dividends later on, putting lenders in a strong position to respond quickly to the outcomes of the FCA’s latest consultation. As such, lenders should look to work with technology providers that understand the importance of consumer vulnerability.
Best-practice providers will offer endto-end solutions that include a Consumer Credit-regulated assurance programme, FCA compliance oversight, and a dedicated team of risk and compliance professionals to provide support and guidance on all areas of the FCA handbook, including risk management, policies and procedures, FCA authorisation preparations and regulatory training requirements.
