Consumer Vulnerability and the Equality Act 2010: key issues for digital financial services.

• United Kingdom

• Financial services disputes and investigations
• Financial services - Digital Financial Services

30-07-2018

The digitisation of financial services is creating new products, new distribution channels and new modes of communication with customers before, during and after sale.  In this context, this article considers some of the risks to providers of digital financial services that arise from UK regulatory expectations around the treatment of vulnerable customers and duties under the UK's Equality Act 2010.    

Digital communication with customers

As digitisation in the financial services sector progresses, the opportunity for face-to-face and telephone communications with customers is diminishing.  Customers are increasingly accessing services through ‘Apps’ rather than branches.  Customers may be increasingly directed to instant messaging or ‘chatbots’ rather than telephone helplines.  This digitisation creates challenges for complying with regulatory obligations to identify and respond appropriately to vulnerable customers.  Further,  digitisation may lead to certain categories of customers being disadvantaged or receiving unequal access to services.  This can expose firms to legal risks under the UK's Equality Act 2010.  

Vulnerable customers: what the FCA expects

“The FCA expects firms to pay attention to possible indicators of vulnerability and have policies in place to deal with consumers where those indicators suggest they may be at greater risk of harm”[1]

“A vulnerable customer is someone, who due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care”[2]

Customer vulnerability can arise from a spectrum of individual or wider circumstances, including lack of financial capability skills, mental and physical health issues, age, lack of English, redundancy, divorce and physical and mental disability.  Customers can become vulnerable at any time in their life.  The FCA expects firms to be able to identify possible indicators of consumer vulnerability at the point of sale and during the servicing of financial products.  A failure to have due regard to the vulnerability of customers can result in significant regulatory consequences for firms.  

Against a backdrop of increasing automation and standardisation, the key challenges for firms providing digital financial services are: (1) identifying vulnerable customers; and (2) responding effectively to vulnerable customers.  These are our tips for responding to these challenges:

Identifying

• Design for vulnerability:  Firms need to think about identifying vulnerability from the outset when they design their distribution channels.  Automated application processes can be designed to identify indicators of vulnerability, not only through the use of questions designed to identify vulnerability, but also through real-time monitoring and analysis of the applications. 
• Conduct ongoing monitoring: Digitisation may create opportunities for firms to use smart  tools to monitor product usage and other customer data to identify vulnerability throughout the life of a product.
• Scrutinise incoming communications: Firms need to consider how they will identify potential vulnerability from inbound communications and whether it is appropriate to restrict customers to communicating through digital means.   

Responding

• Have a strategy: There will be an expectation from the FCA that firms have thought strategically about customer vulnerability in connection with their product (i.e. where is the scope for harm given the nature of the product or the means in which services are accessed) and that firms will have considered strategies for mitigating risks that may arise.

• Appropriate policies and procedures:  There will be an expectation from the FCA that firms have policies and procedures in place to deal with vulnerable customers before they are identified.  Such policies and procedures may need to provide for non-digital responses, if that is what is required to respond appropriately to vulnerable customers.

• Cultural alignment: Firms may be expected to demonstrate that the fair and appropriate treatment of vulnerable customers is embedded within the firm’s culture and that the digitisation of services is not a bar to the fair treatment of vulnerable customers.

Equality Act 2010: reasonable adjustments

The Equality Act 2010 (the Act) imposes a number of duties on firms, which are designed to prevent customers from being the subject of unlawful discrimination on the grounds of certain protected characteristics.  This article focuses on section 20 of the Act, which we consider to be the most significant challenge for the providers of digital financial services.  Section 20 imposes anticipatory duties to make reasonable adjustments to allow disabled customers to access services. Failure to comply with these anticipatory duties can result in allegations of disability discrimination, leading to consumer complaints, litigation and potentially serious reputational damage. A customer who claims for breach of section 20, may recover in excess of £40,000 for damages for injury to feelings (in extreme cases).

What does section 20 require: 

• Section 20(3) of the Act requires a firm to consider whether any of its provisions, criterion or practices (PCP) (i.e. ‘the way things are done’) present barriers to disabled people. If so, the firm will need to consider making adjustments or changes to its PCPs that are presenting the barriers. If those adjustments are reasonable, they must be made.

• Section 20(5) of the Act requires a firm to consider whether providing extra aids and services, or providing a different or additional service (‘auxiliary aids’ or ‘auxiliary services’), would enable or make it easier for a disabled person to make use of its services. If those ‘auxiliary aids’ or ‘auxiliary services’ are reasonable, they must be provided.

Examples of issues that may arise in respect of the way in which digital services are made accessible to disabled customers include:  whether Apps are compatible with screen readers for the visually impaired; whether someone with restricted movement is able to provide the fingerprint authentication required to access services without assistance; whether someone with learning difficulties who struggles to read and interpret text is able to understand the terms and conditions of a product, or how to use the product appropriately, in the absence of face-to-face or telephone support.

As the duties under section 20 are anticipatory duties, providers of digital financial services must think in advance and on an ongoing basis, about what possible barriers may occur, or what auxiliary aids and/or auxiliary services disabled people, with a range of impairments, might reasonably engage or need. Declining to undertake an adjustment or provide auxiliary aids or services on feasibility grounds, particularly on the basis of cost, requires careful consideration.  The size of the firm and its resources is a factor to be taken into account when considering what is reasonable.

About us

We have a long track record of helping firms (1) respond to complaints that they have failed to have due regard to customer vulnerability; and (2) manage claims for breach of the Equality Act.   Whether you are designing a new digital product or channel of distribution, preparing to seek investment in your product, looking to acquire a fintech firm, or facing challenge from existing customers about your product, we can help you identify and  manage regulatory and legal risks associated with consumer vulnerability and  the Equality Act. Please contact us if you would like any further information.

[1] FCA Mission – our Future Approach to Customers, November 2017

[2] FCA Occasional Paper 8: February 2015