3.5 Vulnerable Customers Flashcards
Defining vulnerable customers
‘ vulnerability in customers refer to their relationship between poverty, risk and efforts to manage risk’
The world bank (2001)
FCA > is someone who due to their personal circumstances is likely to harm, particularly when a firm is not acting with appropriate level of care’
27.7 million adults in the UK have now characteristics of vulnerability
Characteristics of vulnerability:
Poor health
Experiencing negative life
Low financial resilience
Low capability
Includes: physical/mental issues, advanced age, no education and low income or unemployment
Vulnerability in the financial services sector
- wide range of choice of providers and products (A bank may offer at six different current account products)
Can be further complicated by changes in the financial climate (rise in interest rates) by changes in the way banks products are delivered (branches closing)
All of these issues make it harder for vulnerable customers
Struggle to make use out of products
Identifying vulnerable customers
Health: physical disability, long-term illness, addiction, mental health
Life events: retirement, income shock, domestic abuse, caring responsibilities
Resilience: low savings, Inadequate (outgoings exceeded income), over indebtedness
Capability: poor language skills and literacy, low knowledge and confidence in managing finances
Four drivers of vulnerability UKFCA 2021
Many types of vulnerability
Health
Economic circumstances: low income, debt, unemployment
Age: Older people may suffer from being able to see her move or understand
Younger people may like experience
Life events or conditions: divorce, loneliness
Educational level: low reading and writing, learning disability
New on society: Ex armed forces returning to civilian life, care home leavers, recent immigrants
Sporadic
= they recur from time to time)
The type of vulnerability these situations can be permanent and others may be temporary
Also when a customer might have two or more vulnerabilities at the same time.
The UK’s FCA
Signs that customer facing staff to consider vulnerability:
- Change in payment behaviour such as loan repayment suddenly stopping or bills being missed or paid late
- other signs may appear during a conversation and that they are unable to make payment and understand the account
- In face-to-face meeting or over the phone staff need to notice any signs of anxiety or frequent request to repeat information
Interacting with vulnerable customers
Maybe less able to represent their own interest
Regulators must always comply with consumer protection regulators
- Staff should always be kind and sympathetic and show they care about the situation (putting themselves in the customer shoes)
many banks have specialist teams to deal with this
What to do when handling a vulnerable customer
- See the customer as an individual and respect them for who they are
- Be present and focus on what they customer has to say.
- Be observant.
- Listen carefully to what the customer is telling you so that you understand the situation and find an appropriate solution.
- Ask questions in a sensitive way to get closer to the real issue
- Establish and ensure the customers is clear on what they want to happen.
- Managed the customer expectations.
- Clarified the best method and time for communicating with them.
- Take responsibility for moving the customer to the next stage and clearly outline what you will do next.
- Be mindful of policy and procedure.
What not to do when dealing with a vulnerable customer?
- Enquire too deeply into the customers circumstances
- Offer advice or opinions that fall outside the customers relationship with the bank
- Give complicated explanations (particularly around rules and policy)
- Over commit in terms of timescales and outcomes
- rush to provide immediate solutions
- Chase the customer for a decision, are they capable of making a decision at the moment? That will be in the best interest?
Organisation solutions to support vulnerable customers
The UK FCA (2021) set out principles for institutions to treat vulnerable customer:
- The need of vulnerable customers
- Skills and capability of staff
- Taking practical action
-Monitoring and evaluation
The need of vulnerable customers
Staff must understand the characteristics of vulnerable customers and the impact of vulnerability on their needs.
Staff must consider how they may be harmed or disadvantaged
Skills and capability of staff
All staff must ensure the fair treatment of vulnerable customers
Frontline staff must have the necessary skills to recognise and respond
Taking practical action
- in product and service design = banks must design products to avoid harmful impacts and take vulnerable customers into account at all stages of the design process
- in customer service = banks must setup systems and processes which allow vulnerable customers to disclosed their needs and allow banks to spot signs of vulnerability
Bank must also deliver customer service that responds flexibly to their needs making them aware of the support available - communication and information = must be understandable (for example if a customer is having trouble paying their bills at the end of each month they should be offered an overdraft as long as it is explained clearly and correctly)
- involving other parties = Customers might be referred to a specialist employee within the bank or they may be signposted to a suitable charitable organisation (example a debt management organisation)
Monitoring and evaluation
Bank should put in place processes to find out whether vulnerable customers needs have been met and to make improvements
This could include producing and reviewing management information that shows the outcomes delivered
