One of the objectives behind the consumer policy which underlies the National Consumer Credit Protection Act is to meet the needs of those who, as consumers, are most vulnerable, or at the greatest disadvantage.

But the National Credit Act, the National Credit Code and the ASIC Act do not use the words “vulnerable customers” or define it.

Instead, they focus on disclosure of information to consumers and unjust conduct.

But, as the Royal Commission has shown, disclosure can be ineffective for a number of reasons, including consumer disengagement, the complexity of documents and products, behavioural biases, misaligned interests and low financial literacy.

The courts have recognised that a systemic practice directed toward exploiting vulnerable consumers is capable of constituting unconscionable conduct.

As consumers in vulnerable circumstances may be significantly less able to represent their own interests, and more likely to suffer harm than the average consumer, how do you ensure these consumers are adequately serviced?

The Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018 is taking a customer focus but it does not use the word “vulnerable”. Its objective is “to ensure financial products are targeted at consumers for whom they are appropriate”.

How do you identify vulnerable customers and the duties they are owed?

In Australian Competition and Consumer Commission v ACM Group Limited (No 3) [2018] FCA 2059 a consumer was described as “particularly vulnerable, given her status as a single parent with three dependent children, worked part-time and was receiving Centrelink payments. ”

Financial Services Royal Commission

One of the Terms of Reference of the Royal Commission is to inquire “whether any conduct, practices, behaviour or business activities by financial services entities fall below community standards and expectations”.

Although the Terms of Reference do not refer to vulnerable consumers it is implied that the community expects that financial institutions consider people on low incomes or who are otherwise marginalised or vulnerable.

The evidence included case studies dealing with some people who were at greater risk, including older Australians, people with a disability, people with mental illness and people who are socially isolated. The Royal Commission also examined how financial services entities are responding to the financial needs and vulnerabilities that can be experienced by Indigenous Australians, in particular those living in remote communities.

2019 Banking Code of Practice

Clause 32 of the 2019 Code which will commence on 1 July 2019 says Code subscribers are committed to providing banking services which are inclusive of all people including older customers, people with a disability and Indigenous Australians, including in remote locations.

Clause 33 says subscribers will train their staff to treat their diverse and vulnerable customers with sensitivity, respect and compassion.

Clause 38  introduces new commitments to take extra care with vulnerable customers, including those experiencing age-related impairment, cognitive impairment, elder abuse, family or domestic violence, financial abuse, mental illness, serious illness and any other personal or financial circumstance causing significant detriment.

But it says “We may become aware of your vulnerability only if you tell us about it.”

This ignores conduct by the subscriber which may cause harm.

United Kingdom Financial Conduct Authority

The Financial Conduct Authority says “A vulnerable consumer 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”.

In its paper “Consumer credit and consumers in vulnerable circumstances” (April 2014) it says low-income consumers can be particularly vulnerable for a variety of reasons but most significantly they tend to be very vulnerable to income or expenditure shocks.

In its paper Consumer Vulnerability (February 2015) the FCA says:

“Types of vulnerability
Vulnerability can come in a range of guises, and can be temporary, sporadic or permanent in nature. It is a fluid state that needs a flexible, tailored response from firms. Many people in vulnerable situations would not diagnose themselves as ‘vulnerable’. The clear message from the research carried out for this paper is that we can all become vulnerable. To enable firms to identify potential vulnerability and prioritise their efforts, one option is for firms to use a risk factor approach (for example, bereavement, or illness diagnosis, could be considered risk factors …). Multi-layered vulnerability, and sudden changes in circumstances, are particular indicators of high risk.

Vulnerability is not just to do with the situation of the consumer. It can be caused or exacerbated by the actions or processes of firms. The impact of vulnerability is strong and many people are trying to cope with difficult situations and limited resources, energy and time. Stress can affect state of mind and the ability to manage effectively. In such conditions, being confronted by a complex telephone menu system that gives no option of talking to a person; a ‘computer says no’ response; a call handler without time or inclination to listen, or a system that fails to record what may be distressing circumstances and forces the customer to repeat themselves at every point of contact, can all create a spiral of stress and difficulty, resulting in detriment.”

Conclusion

It is clear that a financial institution’s conduct can result in detriment to a customer who takes on unmanageable debt.

Reducing potential harm to a vulnerable customer will start by identifying their circumstances and ensuring they are provided with appropriate products.