FCA vulnerability guidance reveals case studies of best and poor practice

Published last week, the document - FG21/1 Guidance for firms on the fair treatment of vulnerable customers – sets out the actions regulated firms need to take to understand vulnerability drivers and ensure staff have the skills to respond to customers in various circumstances.

On publishing the guidance, the FCA called on firms to “understand the nature and scale of characteristics of vulnerability that exist in their target market”, and to ask what types of harm or disadvantage customers may be vulnerable to, and how this might affect the consumer experience and outcomes.

The guidance also calls for firms to ensure the needs of vulnerable customers are a key consideration in the design of products and services, and to make their communications more accessible and understandable.

Some of the mini case studies the FCA highlighted are described here.

A customer with cancer
The FCA describes one case where a consumer with cancer wanted to understand why he was being charged for his overdraft. He didn’t want to talk to the bank as he was ill and didn’t have good phone reception in hospital. He contacted his bank via secure email in his banking app and received a response from the customer service team.

The FCA’s new guidance states: “Although he was not satisfied with the outcome of his query, he was happy that the bank got back to him promptly via his preferred communication method.”

Advocates for customers
The guidance provides another case of a consumer with a mental health condition who tried to become an advocate for his partner, so he could manage his current account while his partner was ill. He expected to be able to look after his partner’s financial affairs temporarily, until he was well enough to look after them himself.

He made several calls with little progress and found it stressful and frustrating to have to prove he had permission to speak on behalf of his partner - and repeat the story every time.

There was no one point of contact or specialist team to deal with. The experience was in direct contrast to his own bank with whom he has had good experiences in relation to his own needs.

The FCA said that failing to recognise and respond sensitively to a customer’s needs can impact directly the customer’s engagement with financial services and, in turn, on how they manage their financial affairs.

Mixed practice in customer service
Another case describes a consumer who became overdrawn due to financial difficulties and had payments refused.

She asked her bank for extra time to add money to her account, but the FCA found the call handler "did not approach the situation sensitively". As a result, the customer felt overwhelmed and unable to explain her situation, which remained unresolved.

The FCA said this contrasts with the same consumer’s experience at another bank where they were put at ease and felt comfortable discussing their financial difficulties. The bank offered to set up a basic bank account for the consumer and reassured her by offering to answer any questions.

The regulator said this “shows the importance of empathy, empowered and knowledgeable staff in delivering the fair treatment of customers.”

Car finance case

The guidance refers to a car finance provider to consumers with poor or non-existent credit files. The lender placed consumers who were having trouble repaying their loans into short term repayment arrangements. The firm did this to avoid further charges and further devaluing of the car in case of default.

However, the FCA found that many of these arrangements were set at unsustainably high levels, particularly for consumers with a history of defaults and non-standard finances. This caused consumers to default or become short of money for other essential expenses.

This, according to the watchdog, illustrates the need for firms to understand and respond to their target market’s needs. This firm’s target market included consumers with characteristics of vulnerability including a poor credit history, illness and unemployment.

The FCA stated that in this case, “these consumers were at greater risk of harm when they fell into arrears. Understanding the needs of this market, putting adequate policies and procedures in place and using them appropriately should have formed an essential part of how this firm approached arrears management and forbearance.”

Bereavement - poor practice

A consumer whose partner had recently passed away went to the bank to sort out their partner’s affairs. They were told ‘There isn’t anyone here who does bereavement today. Come back tomorrow.’

The FCA said the firm, rather than the staff member, was at fault here due to its inflexible processes and inadequate training for dealing with vulnerable consumers suffering distressing life events. Even if specialist staff are not available, the regulator said, all frontline staff should have been trained to advise consumers on how processes, such as registering a bereavement, work, and been able to sensitively advise the consumer of their options.

The regulator added that a lack of sensitive frontline support can lead to disengagement and harm to the consumer.