The FCA's rules and guidance on mental capacity surrounding the sale of consumer credit are set out in CONC 2.10.
The new Consumer Duty further emphasises the importance of suitability of products and services to their customers.
The Duty makes explicit reference to firms paying attention to the needs of customers with characteristics of vulnerability, who have additional needs or be at greater risk of harm.
Mental capacity is about whether a person has the ability to understand, remember and consider information which is presented to them and make an informed decision. It should not be confused with mental health: a person with a mental health condition may still have the capacity to make an informed decision.
Vulnerability is a much broader concept, defined by the FCA as ‘someone who, due to their personal circumstances, is especially susceptible to detriment, particularly where a firm is not acting with appropriate levels of care’. A survey undertaken by the regulator established that half of UK adults display one or more characteristics of being potentially vulnerable.
FCA guidance for firms on the fair treatment of vulnerable customers
In February 2021 the FCA published new vulnerability guidance to help drive improvements in the way firms treat vulnerable customers. The guidance here sets out the standards expected of firms for the fair treatment of vulnerable customers, by taking action to:
- understand the needs of their target market/customer base
- Make sure staff have the right skills and capability to recognise and respond to the needs of vulnerable customers.
- respond to customer needs throughout the way finance products are designed and how customer service and communications are undertaken.
- Monitor and assess whether they are meeting and responding to the needs of customers with characteristics of vulnerability, and make improvements where this is not happening.