Jonathan Barrett, CEO and Co-Founder at Comentis, a provider of digital tools to assess financial vulnerability and mental capacity, explains what the new Consumer Duty regulations mean for the leasing industry, and how this is just the beginning of a broader conversation on vulnerability.
Consumer Duty is here. Having taken effect at the end of July, the requirement to identify and support all customers at risk of vulnerability doesn’t just apply to financial services institutions. Whether a consumer is purchasing a pair of glasses, buying a new sofa or – crucially – leasing a new car, the firm they choose will likely* need to assess them and understand whether they are at risk of vulnerability.
But what does this mean for leasing, specifically? Now that the regulations are in place, how has the industry been affected? And how might things change in the future?
The challenges in leasing
Within the leasing industry, the willingness to engage with Consumer Duty is undoubtedly there.
Matt Rothwell, Head of Brokerage at iCarlease and a Comentis client, told me that “as an industry, leasing is already widely regulated. It’s also an industry in which the vast majority of sales professionals genuinely want to provide the best service possible. After all, treating customers fairly is the surest way to win repeat business, encouraging motorists to lease from us again in the future. But one of the key challenges posed by Consumer Duty has been the pressure for salespeople to correctly identify vulnerable customers.”
It’s little wonder that this particular part of the Consumer Duty process is proving challenging – we at Comentis have found it’s an issue that is far from exclusive to the leasing industry.
What makes this task so daunting is that financial vulnerability isn’t just determined by how much money someone has access to. Under the FCA’s definition, vulnerability is categorised by four key drivers: health events, life events, resilience and capability. A change in circumstance, whether it be a divorce, a new baby, an illness or a bereavement, could easily leave someone vulnerable. Recognising these signs is a complex process, putting a huge amount of pressure on salespeople to consistently carry out a task that could prove challenging even for a mental health professional. The fact that many of these purchases are now made online, removing contact with the customer in question, only adds an extra layer of complexity.
So how has leasing responded? And how can we streamline this process?
Thinking long term
It’s important to remember that while firms doing nothing will face repercussions, Consumer Duty hasn’t been implemented to punish those that fall short. Rather, what the FCA wants is for vulnerability to be taken seriously. It wants to see that the foundations are in place, ready for us to build on as we develop our understanding.
From my conversation with iCarLease, it’s clear that the industry is aware of this. While some might have been looking forward to putting Consumer Duty behind them this summer, broadly speaking there seems to be a consensus that vulnerability isn’t done and dusted, and a desire to continue doing better.
As for how we achieve that, the goal should be for firms to look at the measures that are in place so far and ask how they can go a step further.
The importance of data
For some, providing staff with vulnerability training might seem like the most logical way forward. And it’s encouraging to hear when speaking with those in the industry that training gives sales teams a confidence boost.
But while training is certainly important, what’s ultimately required is a continuous process of implement, test, refine and learn – we need to assess the vulnerability data gathered so far and interrogate it for ways we can improve going forward.
The best place to start is with a firm’s own data. However, to make real headway requires a wide range of external data, too. So many firms are new to the issue of vulnerability. If there are thousands trying to solve the same problem, and to make the same improvements, it makes all the sense in the world to look at other firms – even other industries – and try to benefit from their learnings.
For those looking to get ahead of these developments, a third-party specialist with a technology-driven assessment tool can help to accelerate the process, removing bias and subjectivity, and ensuring consistency across an entire client base. By combining clinical expertise with hard data, they’re able to reassure firms that their systems and controls are affecting the change the FCA is looking for and that they’re giving their customers the best possible experience.
We shouldn’t expect an overnight transformation. In all likelihood, the industry will be developing its understanding of vulnerability for years. But for the most part, the consensus in leasing is not only that Consumer Duty is here to stay, but that it’s a good thing. Over time, and as we continue to learn, the outcomes the sector delivers for vulnerable customers will undoubtedly improve.
* The only exception to this is if the selling firm is an Introducer Appointed Representative or IAR. In which case it will not be their responsibility, but that of the Appointed Representative (AR) or broker.