One step forward, two steps back - the FCA’s proposed new definition of vulnerable consumers

A couple of weeks ago the Financial Conduct Authority, the body that sets the rules for financial services firms, published a paper consulting on their overall approach to ensuring consumers are protected and get a fair deal from companies. At the heart of this document is a section on supporting customers who are vulnerable – for example as a result of their mental health – and a proposed new definition of ‘vulnerable consumers’ who may need additional support.

Earlier this week we brought together a diverse group of organisations with shared concerns about this new definition, including the Money Advice Trust, StepChange and the University of Bristol Personal Finance Research Centre. Together we wrote to the FCA, asking it to think again about the definition and the impact it might have. The FCA has launched a public consultation which ends on 5 February 2018, so there is plenty of time for others to join the conversation. We’ll be surveying our Research Community in the next few weeks to ensure they have chance to have their say.

Although we’re always ambitious about what more can be done, over the last few years the FCA have merited praise for their work on vulnerable consumers, which has led the way for other regulators. But every now and again the left hand doesn’t seem to know quite what the right hand is doing. In recent years the FCA has emphasised the degree to which vulnerable consumers, and particularly those affected by mental health problems, can find it hard to disclose the issues they’re facing – and thus why it is important for firms to identify and reach out to such consumers proactively. The FCA’s current definition of vulnerability has enshrined this approach; unfortunately the proposed new definition doesn’t.

Like many others we shall take our time thinking about how to respond to the 50 odd pages of the report, but it is clear from the off that the new definition of vulnerability is substantially weaker than the old. We are aware that firms respond quickly to the FCA’s work, and that some are already considering how this new definition might change how they operate – so we decided not to wait until the end of the consultation period to raise this issue. Despite reassuring words in the notes accompanying the new definition, and whatever the intentions of the authors, the new definition shifts the burden of responsibility from the firm to proactively identify, engage with and support vulnerable consumers, to the consumer themselves to ‘disclose’ their circumstances to the firm. We believe this change would leave more vulnerable consumers at risk of harm.

The truth for many people who have mental health problems is that illness comes and goes, that when it does it may occur with little warning, and that it may not be something that is easy to talk about. As well as the stigma and embarrassment that can still be attached to poor mental health, our research found that many people with mental health problems struggle to practically communicate with firms when they are unwell – often finding telephone calls particularly distressing and hard to manage. It is therefore better if firms start from a position of actively trying to understand the circumstances of their customers, looking out for irregular patterns of behaviour and activity, and stepping in to proactively offer help and support, rather than waiting to be told. The old – or current – definition has it right from our point of view:

Moving from a simple definition where the burden of responsibility lies with the firm selling the service to a new one where responsibility is shared more hazily between the firm and the consumer can’t be good for vulnerable consumers, and it has particular risks for consumers with ‘hidden’ vulnerabilities or who can struggle with communication – such as people with mental health problems.

The FCA’s paper, ‘Our Future Approach’, has much to commend it. Of course we want to see the FCA continuing to use their powers to address confusing and complicated products which make life harder for vulnerable consumers in general, and people with mental health problems in particular. Of course we want the FCA to step in and ensure equality of access to financial services, not least to observe the relevant parts of the Equality Act. The section on regulating for vulnerable consumers has much to recommend it, which we will be digesting and responding to in time. But it makes you wonder why the shift in focus in the definition of vulnerability, if the FCA themselves agree that firms need to try harder to identify people in vulnerable circumstances.

Generally the saying goes that ‘the devil is in the detail’. In this case, it seems that there is lots in the detail to reassure anyone who is concerned about fair treatment of vulnerable consumers; the devil here is in the definition.

We are very pleased that the Financial Conduct Authority has since responded to our letter and suggested a meeting to discuss these concerns further.