On 15th March 2019, the UK regulator for
financial services, the Financial Conduct Authority (FCA) published a report on consumers and debt management firms. The
report focused on the impact of advice provided by debt management firms to
vulnerable consumers. This report comes shortly after the publication of the
Access To Cash review report on the declining use of cash in Britain and its
impact on vulnerable consumers (you can read the blog post on that report here.
This publication is a follow-up on the 2015 review of the sector conducted
by the FCA. The FCA is a newly established authority and these reviews have the
dual aim of assisting the FCA in gaining a better understanding of the sector
as well as an nudge to traders to increase their standards (though the report
does not set any goals). For the report a sample of 12 firms was selected
including both commercial debt management firms and not-for-profit debt advice
bodies.
The results of the 2015 review were grim, exposing an
unacceptably low standard of services, especially by commercial fee paying
firms and a high risk of detriment for vulnerable consumers. Has the situation
improved since then?
The 2019 report shows that there has been an improvement,
and commercial firms tend to be more customer-focused now, compared to a few
years ago. However, there is still a long way to go for improving standards in
the area. The two main areas identified for improvement are:
1) Debt advice given to customers seeking help together or who are
already on a joint debt management plan.
Firms often treat consumers as a unit and fail to provide
them with options that apply only to one of them, meaning they may lose out on
a more favourable solution.
2) The identification and treatment of vulnerable customers.
While most firms have good intentions, they do not have the
proper procedures in place, quality assurance and staff training for
identifying and assisting vulnerable consumers in an appropriate manner.
Consumers’ vulnerability or vulnerabilities may go unnoticed or unrecorded.
Worse yet, it may be identified only to later be buried under a pile of
documents or processes and not accessible to the next person handling the case.
Identifying consumer vulnerability has a severe impact on
the advice that should be provided to these consumers and how they will respond
to it. Firms need to take the circumstances of each consumer into account, also
in the advice provided.
Furthermore, the report point out that there is no
one-size-fits-all when addressing vulnerability and firms should be flexible
and be able to adapt to the needs of vulnerable consumers where necessary. Some
firms have done that successfully by creating specialist units that receive
further training and had greater autonomy within the company on how the
communicate with customers. Such specialist units could be key in addressing
the needs of vulnerable consumers.
The report is a welcome development to bring attention to
the needs of vulnerable consumers of financial services and the FCA is showing
its commitment to pursue this agenda further by taking action against firms as
well as publishing a new guidance on vulnerable consumers.
