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LLLE 2024: Consumer Duty ‘changes the game’ on vulnerability

  • 07/02/2024
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LLLE 2024: Consumer Duty ‘changes the game’ on vulnerability
Consumer Duty has changed the way customer vulnerability should be viewed as it puts the onus on firms to change their processes, a panel has said.

Speaking on a panel at the Later Life Lending Event, Robert Sinclair (pictured), chief executive of the Association of Mortgage Intermediaries, said the Consumer Duty had changed the way customer vulnerability should be viewed in the equity release space.

He explained: “Consumer Duty changes the game here because it puts our responsibility and accountability on the firm to change the way they do things to deal with that vulnerability. That’s always been there passively but duty raises the stakes in the game for the firm to ensure we have structures and processes in place to do this.

“The other part of this is that there’s much more explicit duty here to pass like information between entities but that need to make sure that you’ve made those decisions to pass information wherever the customer feels they need help to deal with the characteristics of vulnerability are really important.”

He said that companies would to have attest “how they have dealt differently” with customers with vulnerable characteristics and that will be “the real thing that the regulator will take a look at if they come to look at the sector”.

Sinclair added that the sector “have to build better bridges where the lending community gives confidence that they will use those vulnerability issues in a sensitive way, not a penal way and that gets us to better place”.

Marie Catch, head of mortgage market development and optimisation at L&G Home Finance, agreed that Consumer Duty had “heightened the standards” in terms of how the industry ensures that it is supporting customers in vulnerable customers.

She said that it was often the case that customers could fit into several categories that the FCA defines as vulnerable, which are separated into health, life events, capability and resilience.

“We know the customer lifespan and what they go through can differ from one year to next so it’s making sure that as an organisation, like we do, that we’re sense checking with those customers to ensure we know about what is happening in their life, so if we feel that they are in a circumstance that they need some support for then we will,” Catch added.

Consumer Duty board reports will push CEOs to challenge more

She also said that upcoming board reports as part of Consumer Duty, which is where companies need to prepare a report for their board setting out results and actions of monitoring customer outcomes, would bring “a lot more focus for the CEO of companies to be more challenging of the report that they receive and what we’re doing to be very more customer focused”.

Catch said that showing the customer life journey and that the firm is there to “support them through vulnerable events” was the “premise” of the board report.

“It’s having those processes in play and making sure that they are fit for purpose, and then making sure that we can signpost appropriately. I think that’s going to be coming through where the boards will be more challenging on the reports that they see and how we validate that,” she added.

Richad Farr, non-executive director of Comentis, added that writing the board report on vulnerable customer action could be challenging as the “granular data” has not built up yet.

“The FCA has said, take your time to get to your board report because there’s data that you don’t have that you’re going to need to build up. So, the reality is writing it is almost tactical…because there is an expectation of data,” he said.


Consumer Duty ‘foreseeable harm’ will be ‘gap between want and need’

Sinclair continued that the “foreseeable harm” in later life lending, as the regulator saw it, would be the “gap between want and need”.

He said examples like house repair to make it more age-appropriate, going to visit a child in Australia before they died or wanting a good holiday were all valid reasons “as long as they understand the implications of that want on their long-term wealth and value that’s fine”.

“If they want to keep money in their savings account, because they’re worried about a rainy day..that needs to be clearly articulated, because if not it’s a clear demonstrable foreseeable harm as there are long-term implications of taking that money out in a way that isn’t required,” Sinclair noted.

He added that there was a “challenge” now in terms of what foreseeable harm was from a consumer perspective and “how the ombudsman might judge that retrospectively in 15 years’ time”.

“That’s the one I worry about,” Sinclair said.

“Therefore, I think we’re this interesting fulcrum of not lending to maximum LTV, but this fundamental understanding of income, expenditure and need and if it’s a want, you’re going to have to really document it in a way that’s entirely different to where we are,” he said.


Broker firms without compliance function ‘cannot operate’

Sinclair said that he could “not work out” how broker firms who were not part of a network with a “holistic compliance function” or a bigger firm with its own compliance function could “operate in a marketplace of advice today.

“You cannot operate. You need to have that level of support and structure around you because this is complicated and therefore, I would say if you’ve not got that, you’re walking a very sharp tight rope,” he added.

Catch added that it was about using compliance resources available, whether that was internal resources and training or reaching out and making partnerships.

“It is making sure that as an adviser, you are taking those reasonable steps to be able to support customers because you never know who is going to walk through your door,” she noted.

Farr said that advisers were “pretty good at caring for our customers and taking that passion, that view and that duty of care”.

“But the one takeaway I give is about demonstrating how we’ve identified vulnerable customers, what you’ve done about it for the first reason is that you’re going to have to do an annual report for FCA on Consumer Duty and vulnerability is a major part of that.

“Secondly, I think if you if you’ve got the right habits of recording all that evidence you’re protecting yourselves further down the line,” he added.


The Later Life Lending Event will return next year on 23 January 2025 at Hilton London Bankside.

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