The fair treatment of vulnerable customers by creditors is a continuing focus of the regulators. Given the risk of large fines and customer redress payments, motor finance providers should consider how they ensure their policies, processes and systems identify vulnerable customers and deal with them fairly.
What constitutes a vulnerability?
The FCA adopts a wide definition of a vulnerable person:
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“someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.”
Vulnerable customers may be significantly less able to represent their own financial interests and are susceptible to over-indebtedness.
How to spot vulnerability?
Factors that drive a customers’ susceptibility to detriment may include:
- Health– Health conditions or illness which prevent a customer from carrying out everyday tasks;
- Life Events– Major life events such as bereavement or relationship breakdown;
- Resilience– A low ability to withstand financial or emotional shocks; and
- Capability– Limited knowledge or low confidence in financial matters and managing money.
Vulnerability can be temporary, sporadic or permanent. Firms should be continuously mindful of changes in customers’ circumstances which may make them especially susceptible to detriment at that point in time.
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By GlobalDataWhat are the regulators expecting?
The FCA is expecting firms to embed the fair treatment of vulnerable customers into their culture at all levels. It is expected that firms will be able to:
- identify actual or potential vulnerabilities;
- have an understanding of their vulnerable customers’ needs; and
- have an understanding of the harm that can arise if such needs are not met.
Staff will need the necessary knowledge, skills and capability to meet those needs and such knowledge will need to be translated into practical action at the key points of the customer journey.
This primarily involves firms engaging with information they already hold regarding their customers and seeking any further relevant information from customers when necessary. This needs to be balanced with the firm’s data protection obligations under GDPR and the Data Protection Act 2018.
Debt collection and vulnerability
Naturally, the FCA’s expectations may appear opposed to firms’ debt collection processes. Whilst customers should pay what they owe, firms should endeavour for this to be in a manageable way with customers making reasonable and affordable payments.
According to a recent Ombudsman News, the FOS’s top three complaints from customers regarding debt collection are:
- Whether they were being asked for the right amount of money (21%);
- Customer service issues (including administrative errors, excessive contact or belief that the debt has already been satisfied) (13%); and
- That the debt being pursued was not theirs (13%).
The FCA has highlighted that communication with customers is key. Firms must communicate the likely consequences of failing to keep up with payments to customers in a way which is clear, fair and not misleading. For motor finance providers, this will mean setting out a range of options for customers including voluntary termination rights, surrender of the vehicle, and giving customers the chance to clear arrears over a realistic and sustainable period. What is right for one customer may not necessarily be right for another.
This clear approach should improve the way a firm deals with all of its customers and will naturally improve a firm’s approach to vulnerable customers.
Litigation should always be a firm’s last resort when seeking to recover debts or vehicles from customers. Firms should consider restructuring debts, payment holidays, and even writing off debt in certain cases before issuing proceedings.
The FCA’s next steps on vulnerable customers
The House of Commons Treasury Committee has urged the FCA to do more to protect vulnerable customers, specifically asking the FCA to set clear expectations regarding firms’ treatment of vulnerable customers.
In July 2019, the FCA published a two-stage consultation on its draft guidance for firms on the fair treatment of vulnerable customers. The first stage of the FCA’s consultation on its draft guidance for firms on the fair treatment of vulnerable customers closed in October 2019. The second stage is eagerly awaited, and lenders should start considering now how they meet the FCA’s expectations regarding vulnerable customers and how they tailor their debt collection processes to balance commercial considerations and the needs of vulnerable customers.
