Treating customers fairly’ (TCF) has been a long-standing focus of the Financial Conduct Authority’s (FCA) work with retail financial services firms.

Particularly, the regulator has concentrated recently on the need for firms to increase awareness of – and raise service standards for – vulnerable customers.

In February last year, the FCA published Occasional Paper No 8, which aimed, in the regulator’s own words, to stimulate

‘debate and interest around the subject of consumer vulnerability so that firms better understand the issue and act appropriately.’

The regulator’s definition of vulnerable customers is outlined in the paper, and extends not only to those with disabilities or impaired mental capacity, but people who have lost their job, suffered a bereavement or who face serious illness or financial difficulty.

Ensuring TCF outcomes are achieved for vulnerable consumers

In March 2015, the FCA announced plans to introduce additional requirements specifically aimed at ensuring TCF outcomes are achieved for vulnerable customers with regard to mortgages.

To deliver this, the FCA is taking a couple of steps:

  • Provisions from the Consumer Credit sourcebook (also known as CONC) are being incorporated into the Mortgage Conduct of Business rules (known for short as MCOB) at ‘MCOB 13’.
  • A new rule, MCOB Rule 13.4A is being introduced. This rule will mandate data sharing between lenders – or ‘charge holders’ over a property

These new requirements will come into force on 21 March 2016.

What do the new MCOB requirements mean?

MCOB 13.3.1C R relates specifically to vulnerable customers. It says that:

A firm must establish and implement clear, effective and appropriate policies and procedures for the fair and appropriate treatment of customers whom the firm understands, or reasonably suspects, to be particularly vulnerable.’

MCOB 13.4A.1 R states that:

If a firm commences legal proceedings against a customer in respect of a regulated mortgage contract or a home purchase plan, it must give notice of the commencement of the legal proceedings to all persons specified in MCOB 13.4A.2 R at the time of their commencement, or as soon as reasonably practicable afterwards’.

It also makes requirements about data sharing in the event that a customer voluntarily surrenders possession of their property to a firm, or if a customer is placed in an assisted voluntary sale process.

What do firms have to do to comply?

Any firm providing mortgage credit will need to ensure they abide by the new regulations. As part of this, a clear definition of a ‘vulnerable customer’ is essential.

Legally, there is no single definition of a ‘vulnerable customer’. However, it’s clear from the FCA’s wording – and the reference to Occasional Paper No. 8, which views ‘vulnerable’ as being far broader than just those with mental health issues – that the regulator is taking a broad view here. Firms should probably follow suit in terms of their own definition.

All regulated firms, including mortgage providers, should already have TCF as a priority, as it is something the regulator has been very focused on for some time. As a result, the new requirements shouldn’t mean a huge change in approach. But it is worth revisiting your operations, communications and financial promotions before 21 March to make sure they comply.