A WORTHWHILE PUZZLE
DECIPHERING CONSUMER VULNERABILITY IN LENDING

TRANSUNION

As we continue to navigate the cost of living crisis, credit markets are seeing an ever growing number of vulnerable consumers. This is against a backdrop of the FCA’s Consumer Duty obligations, ensuring good and fair consumer outcomes. As an industry, we recognise that addressing consumer vulnerability is more than a regulatory requirement, it’s crucial for the health of both the credit market and consumers.

Industry responses need to be about more than just compliance. We must build a financial ecosystem that is accessible, equitable, and resilient – ensuring all consumers, especially the vulnerable, get the care and protection they deserve. This underscores a collective industry effort to foster a fairer, more inclusive credit market.

At TransUnion we’ve worked with industry to optimise our rich credit data to understand the scale and spectrum of consumer vulnerability, to help the industry identify consumers who need most support. Our immediate insights focused on the financial side of a consumer’s life, specifically understanding the impact of pressure and stress on disposable incomes.

Recently, TransUnion have worked with non-financial vulnerability data via the Vulnerability Registration Service (VRS), who capture an array of self-declared non-financial vulnerabilities such as mental health, disability and gambling addiction.

Using VRS data, we get an idea of challenges facing the UK industry. Vulnerability is a broad concept – a significant proportion of the population are impacted in some way and classed as vulnerable at some point in their lives. However, not all vulnerabilities lead to harm, the support the consumer needs could be based around service and accessibility rather than intervention. It’s therefore important to understand the consumer’s position on the spectrum of vulnerability, the likelihood of future harm and the best treatment strategies and appropriate services for them.

For example, roughly 16m UK consumers live with some form of disability – for many their greatest need is appropriate access to credit, and efforts to ensure their inclusion (i).  When focussing solely on financial vulnerabilities, 31% of UK consumers have at least one indicator, or to be more specific, 11% of UK adults are experiencing financial distress (ii).

We must build a financial ecosystem that is accessible, equitable, and resilient – ensuring all consumers, especially the vulnerable, get the care and protection they deserve.

TransUnion can also identify income-based vulnerabilities, with 15m working age consumers falling into the low income bracket (where income is approximately 70% of UK median income). Whilst low income doesn’t always indicate vulnerability, the cost of living crisis has resulted in material stresses on customer’s affordability. We’ve found that approximately 10m UK consumers are in severe income distress, spending everything they earn each month (iii).

We have observed good practices across the industry – examples include increased access and usage of non-financial vulnerability data; greater focus on predictive analytics, expanding outcome definitions beyond delinquency and profitability; and re-designing servicing capabilities with specific vulnerabilities in mind.

Supporting vulnerable consumers is a non-competitive industry imperative, and as such, we need to collaborate and share best practices – to improve both detection and treatment strategies.

To find out more about TransUnion’s solutions, visit the website.

i UK Gov, 2022 Family Resources Survey, Tavle 4.1 Disability Prevalence
ii TransUnion Financial Distress Index
iii TransUnion Affordability Data and Cost of Living Model