The FCA expects lenders to pay attention to possible signs of vulnerability in potential borrowers and act with appropriate care. The FCA define a vulnerable customer as someone who:
- is significantly less able to engage with the market
- would suffer disproportionately if things go wrong
Guidance is available for lenders on responsible lending to vulnerable customers. We’d expect lenders to be aware of this guidance and be able to show that they didn’t lend irresponsibly. Where a borrower is vulnerable, we’d usually expect lenders to take more care to ensure that any credit provided is sustainable.
These situations can be difficult as a customer might not see themselves as vulnerable, and might not be financially struggling in an easily identifiable way. If a lender couldn’t reasonably have been aware that a borrower was vulnerable (even if we later knew the customer was), then we’d take this into account. But we’d still expect the lender to take account of this and react appropriately to ensure the borrower is treated fairly if and when they become aware that the borrower is vulnerable.
Checking whether a borrower is vulnerable
Different factors can make a customer ‘vulnerable’. In the FCA published a report called ‘Consumer Credit and Consumers in Vulnerable Circumstances’. This sets out what the FCA considers vulnerable to mean. The FCA has since expanded on this in other reports, such as its ‘Occasional Paper on Consumer Vulnerability’ in and its discussion paper on ‘Duty of Care and Potential Alternative Approaches’.
If a lender knew that a borrower was vulnerable before lending to them, we’ll want to know what extra steps they took to ensure they didn’t lend irresponsibly. If the lender didn’t know the borrower was vulnerable (or that it needed to take extra care), we’ll investigate whether taking extra care would more likely than not resulted in a different lending decision. If we think it would, then we’d usually tell the lender to ensure that the borrower wasn’t disadvantaged by the lending.
The rules and regulations apply to all forms of finance and this includes finance taken out at the ‘point of sale’, i.e. in the store through a retailer or perhaps car dealership. This includes credit for large household purchases like sofas, kitchens, bathrooms and car finance. There are various ways to fund the cost of a car these days and this includes hire purchase, conditional sale agreements, personal contract purchase (PCP) and personal contract hire (PCH). While the specifics of each of these types of finance might be different, the finance company needs to carry out a proportionate affordability assessment in each case.
Kitchens, bathrooms and cars in particular can be very expensive and the monthly repayments needed for the finance can be considerable. It’s not uncommon for some car finance agreements to be as much as ?500 each month over four years. This is a significant commitment for a consumer and the checks the finance company does need to ensure the monthly repayments are actually affordable in every case.
Putting things right
If we decide you’ve treated the customer unfairly, or have made a mistake, we’ll ask you to put things right. Our general approach is that the customer should be put back in the position they would have been in if the problem hadn’t happened. We may also ask you to compensate them for any distress or inconvenience they’ve experienced as a result of the problem.
The exact details of how we’ll ask you to put things right will depend on the nature of the complaint, and how the customer lost out. The following information gives an idea of our approach.