Vulnerable Customers and Consumer Duty: What does it all mean for businesses?

Understanding the lifestyles, challenges and needs of ‘vulnerable customers’ is an area in which we are increasingly being asked to help clients. Through this blog series on vulnerability, we will explain why this is important for a vast range of businesses, share our top tips for excellence and provide a spotlight on our main learnings.

The Financial Conduct Authority (FCA)’s definition of a 'vulnerable customer' is 'someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care'. According to the FCA's Financial Lives Survey in 2020, 46% of UK adults (24 million people) showed one or more characteristics of vulnerability. To put that into context, as a business almost half of your customer base could be living with a vulnerability.

Alongside the findings of their Financial Lives Surveys, the FCA has a wealth of information and resources for those of us wanting to better understand vulnerability. One of the assets we use frequently is its framework of vulnerability. This is an excellent tool for bringing to life the broad spectrum of situations and conditions that may lead to an individual being classed as ‘vulnerable’. There are four key types of vulnerability:

• Health (such as physical disabilities, hearing or visual impairments or poor mental health);

• Life events (comprising of bereavements, income shock or relationship breakdowns);

• Resilience (within which low or erratic income and over indebtedness sit); and

• Capability (which includes poor literacy or numeracy skills and low English language or low digital skills).

Evidence from the FCA work shows that living with a vulnerability increases your likelihood of having more than one type of vulnerability. We spoke with Amina*, to understand the impact of speaking English as a foreign language. However, through our conversations we understood that she also ticks many other vulnerability boxes, such as having a physical health condition, anxiety, and being a carer for her son with ASD.

With so many people living with a vulnerability and so many different types of vulnerability, we know that this topic can feel daunting and overwhelming. How and where do you start with understanding your vulnerable customers better? We would encourage clients to tackle this step by step. For example, the approach that we are taking with a High Street Bank is to commission a series of customer closeness surgeries which will explore one type of vulnerability at a time.

The FCA’s Consumer Duty charter comes into force on 31st July 2023, setting ‘higher and clearer standards of consumer protection across financial services’ and requiring firms to act to ‘deliver good outcomes’ for all customers. This is great news, as we know how much of a difference this can make to the outcomes for vulnerable customers. Sophie* shared her story about making a phone call to a credit provider following a dramatic family incident which led to a sudden income shock: ‘I picked up the phone. And I remember this day because I was on the floor [with relief], I explained my situation and she listened to me and asked me questions. The sheer fact of being able to explain my side of the story was emotional… the relief, the overwhelming relief!’.

With the introduction of the FCA’s Consumer Duty obligations, we predict that getting closer to vulnerable customers will become of even greater importance to more companies in 2023.

*names changed for confidentiality