Twelve Days of Consumer Duty #4: vulnerability and the cost of living

It’s day 4 of our Twelve Days of Consumer Duty exploring key questions midway through firms’ implementation journeys.  

Today’s question

“Given the current cost of living crisis, how should firms be approaching vulnerable customers?”

The answer

It’s timely to focus on this now. As well as cost of living pressures, customers are increasingly being tempted to invest beyond their risk tolerance (in crypto and other high risk-high return products). There has also been a prolific rise in scams since the start of the pandemic.

The Consumer Duty contains enforceable rules requiring the needs of vulnerable customers to be met within all four of the Duty’s consumer outcomes.  These don’t go into what this means in detail.  That is left to the FCA’s guidance on the Consumer Duty and this in turn places front-and-centre the FCA’s finalised guidance on the treatment of vulnerable customers issued in February 2021.

We anticipate that the FCA will use its February 2021 guidance to help it to assess whether firms could reasonably have been expected to recognise, at the time any poor treatment occurred, that the conduct in question fell below the standards the FCA requires.

To meet these standards, firms will need to ensure that front line teams have the skills and capabilities to recognise vulnerability and are able to evidence steps they are taking to ensure that vulnerable customers enjoy equally favourable outcomes.

At the product design stage, manufacturers might think about taking an inclusive design approach, using focus groups to better understand vulnerable customers’ needs, seeking input from organisations (including third-sector organisations) with relevant resources and expertise, and stress-testing products to determine impacts on vulnerable customers in various market conditions.  

On a related note: you should still consider vulnerable customers as part of product design, even if you rely on PROD equivalence to satisfy the Consumer Duty’s products and services outcome.  PROD doesn’t cover vulnerable customers in the product design context, however, the obligations on firms to consider the needs of vulnerable customers across the product lifecycle/customer journey are located in the cross-cutting rules.

Firms should also ensure that their customer support framework allows for tailoring; that customer communications are tested in the context of vulnerability; and outcomes are tested and monitored across different characteristics of vulnerability.

Vulnerability is likely to come into sharp focus as firms face increasing numbers of retail customers in financial distress.  This was already an enforcement focus, and previous cases demonstrate the FCA’s expectations that customer treatment be personalised and holistic, and involve analysing a range of information about the individual and a degree of discretion.  The FCA’s November 2022 report on borrowers in financial difficulty identifies four key areas for lenders to focus on: customer engagement, effective customer conversations, helping customers to access money guidance and debt advice, and fees and charges.

Firms would do well to consider the examples of good and poor practice in the above reports and guidance; the FCA’s thinking here will be carried through into its Consumer Duty work.

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