Ethics in finance
Vulnerable customers need protection, not persecution
The financial services industry still has work to do to improve on outcomes for vulnerable customers, writes Glenn Matthews, head of operations at Close Brothers Motor Finance
The last few years have brought about seismic changes in the motor industry. Dealers have navigated the shift to online retail, demand for alternative fuelled vehicles has accelerated, and the semi-conductor shortage has played havoc with manufacturers. But one of the biggest changes goes, all too often, ignored; the changing landscape for vulnerable customers.
There are more than 24 million people in the UK with "characteristics of vulnerability" and 10.7 million whose vulnerability specifically impacts their financial resilience, according to the FCA's Financial Lives 2020 survey: the impact of coronavirus.
"Vulnerability" covers a wide spectrum of risk. All customers are at risk of becoming vulnerable, but this risk is increased by things like poor health such as cognitive impairment, life events such as new caring responsibilities, low resilience to cope with financial or emotional shocks and low capability, such as poor literacy or numeracy skills, according to the FCA's Guidance for firms on the fair treatment of vulnerable customers.
FCA & vulnerability
have characteristics of vulnerability in October 2020: an increase of 3.7 million since February 2020
have low financial resilience in October 2020: an increase of 3.5 million since February 2020
Because of the rising number of vulnerable customers, how firms treat them has shot to the top of the FCA’s agenda. The regulator released several rounds of guidance to financial services firms throughout the pandemic, and that focus shows no sign of waning.
The regulator requires businesses to:
- understand the needs of their target market/customer base
- make sure staff have the right skills and capability to recognise and respond to the needs of vulnerable customers
- respond to customer needs throughout product design, flexible customer service provision and communications
- monitor and assess whether they are meeting and responding to the needs of customers with characteristics of vulnerability, and make improvements where this is not happening
And now, with the cost-of-living crisis heating up and inflation set to hit 13% later this year, we are preparing for a surge in the number of people needing help with their finance agreements, and within that a disproportionately high increase in vulnerable customers.
Covid & the customer journey
Financial service providers worth their salt have undergone a dramatic operational transformation undertaking in terms of the customer journey over the last couple of years.
The pandemic was enlightening for the sector, making many financial services companies realise that their policy on forbearance could do with updating.
Providers looking to improve their service must ensure they are more adaptable to customer needs, with the ability to offer breathing space, alternative payment methods, and extended periods of support. Furthermore, any enhanced forbearance offering must apply to all financial products and agreements.
At Close Brothers Motor Finance, we have expanded and retrained our customer handling team and brought in customer-centric KPIs. This has meant a transition from commercial KPIs (like collections figures and time on calls) to outcomes which prioritise the customer. Our goal has been to find the right solution for all parties, a first-time resolution and honest and open conversations.
Vulnerable customers: reaching best practice
All customers deserve the best service from their finance provider, and a one-size-fits-all approach means some customers would fall through the net. That’s why we designed a bespoke vulnerable customer policy. We ran a survey of our customer base and ran focus groups and one-to-one interviews with our vulnerable customers to shape our future programme.
Within the policy, we differentiate between customers who are somewhat vulnerable and require some flexibility/enhanced forbearance and those who are particularly vulnerable and in need of enhanced levels of support.
For this latter group, we trained up a specialist customer-handling team to manage such cases. Enhanced training on empathy, resilience, and decision-making was crucial; our team needed to be able to handle the cases emotionally and feel empowered to make the right call for the customer.
This is never commercially-led; if the right decision for a particular case is for a customer to have the car and walk away, that’s the decision we make.
We also ensure that there are multiple touch points throughout the finance process, both when everything is smooth-sailing and if things go wrong. At any and every missed payment, the customer team will be in touch to try to arrange a solution. During the default process, there are multiple layers of communication. In the most extreme cases, our collections suppliers are thoroughly trained in dealing with vulnerable customers and will walk away if they discover a previously-unknown vulnerability.
Hurdles in the road
The biggest issue we’ve had to tackle in our journey is the stigma attached to vulnerability. Many customers worry they’ll be treated poorly or turned away from finance if they disclose their vulnerability, either to their dealer or their finance provider. This pushes providers into a reactive stance, dealing with vulnerabilities once they’ve already happened, rather than being able to provide the right support in the first place.
The industry needs to join forces to solve this, with finance providers, dealers, and even manufacturers playing a role. There is a communications campaign required, to explain to customers the regulatory protection in place and the power their disclosure holds. Whether it’s on the forecourt at early meetings, at the point of sale, or in the welcome call to the financial arrangements, the message must be clear and consistent; vulnerability results in protection, not persecution.