Understanding Vulnerability in consumer credit

Consumer vulnerability is a priority in financial services, with regulators expecting firms to identify and support customers who are at a greater risk of harm. Whether due to health issues, financial hardship, or significant life changes, vulnerable customers require tailored approaches to ensure fair treatment and good outcomes.

Why can identifying vulnerability be difficult?

Undoubtedly, identifying vulnerability is the first step, and it can be challenging.

The FCA definition recognises that vulnerability can be temporary or enduring. People can move in and out, sometimes quite quickly. Likewise, a gradually changing circumstance may be due to ageing or a slowly worsening financial situation.

Second, many customers do not disclose personal circumstances for several reasons, from embarrassment to concern that they might be declined credit.

Third, of course, the individual might also be unaware of their vulnerability.

This makes it challenging for firms to assess their needs. Lenders must develop effective ways to recognise vulnerability, such as staff training and data-driven insights, all the time balancing being proactive and respecting customer privacy.

Providing support to those who are vulnerable

Once identified, vulnerable customers require support. Firms must offer flexibility, such as alternative repayment plans, signposting to debt advice, or adjusting communication methods to meet the needs of their customers.

The FCA expects firms to embed these considerations into business models rather than treating them as an afterthought.

New rules around vulnerability in consumer credit

The regulatory landscape continues to evolve. The introduction of the Consumer Duty heightened expectations around fair value and customer outcomes. There is an industry view that this has expanded upon the earlier work on Treating Customers Fairly.

The FCA placed the treatment of vulnerable customers within the Consumer Credit Handbook (CONC). It provides a more detailed framework on how firms should treat vulnerable customers when providing credit products, assessing affordability, and offering repayment options.

The FCA recently updated its work on the Fair Treatment of Vulnerable Customers.

Helping understand vulnerability

While we can direct you to the relevant regulations and guidance, they can be complex. Smaller firms, in particular, must navigate these changes while managing compliance costs and operational challenges.

Ensuring fair treatment for vulnerable customers is a regulatory obligation and a crucial part of responsible lending. Our resources, training, and advocacy help firms integrate fair treatment for vulnerable customers into their operations, enabling them to meet regulators’ expectations.

For deeper insights, explore our vulnerability resources, join our training sessions, or speak with us about best practices for embedding vulnerability support into your business model.