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.